Subsistence and
entertainment
Entertaining staff
and customers
In terms of taxable profits, entertaining
clients is not usually allowed.
Entertainment of your own staff
generally is.
For VAT, you cannot usually reclaim input
tax on entertainment unless it is for your
own staff, such as for a Christmas party.
Entertainment of any ‘non-employee’ is
regarded as business entertainment. Non-
employees include:
•
prospective employees
•
employees of other group companies
•
shareholders who are not employees
•
existing customers.
If an annual function is primarily for
employees but non-employees are also
present, VAT may be claimed for the
proportion that relates to the employees.
So if a party has 20 employees and 5 non-
employees, you may reclaim four-fifths of
the input tax. If the function is primarily a
business occasion to entertain clients and
Subsistence
is a payment for an
individual in relation to work-related travel,
accommodation and meals beyond those
normally required.
Entertainment
is when someone in
business provides a meal or social event
to a customer, potential customer or other
person such as a professional contact.
Examples of entertainment include:
•
meals
•
hotel accommodation
•
theatre and concert tickets
•
sporting events
•
night clubs
•
certain business gifts.
Tax issues relate to whether:
a) the employer may claim relief from
taxable profits
b) the employee must pay tax on
any benefit
c) whether the company may claim
back the VAT incurred.
ACTIVE PRACTICE
UPDATES
SEPTEMBER 2014
Business UPDATE
This guide explains how tax relief works for
subsistence and entertainment costs.
prospective clients, no VAT may be claimed
even if some employees are present.
There is 1 exception in relation to
entertaining clients. You may claim VAT
input tax in respect of entertaining a
foreign client but not for entertaining a
UK client. You may not claim relief against
taxable profits for entertaining any client.
Income tax for employees
There is a potential income tax liability for
employees as a function is clearly a benefit
in kind (BIK). However, there is a specific
exemption for annual functions and other
yearly social functions for employees
where the total cost per person during the
year does not exceed £150. This limit is
calculated by dividing the whole cost of
the event - including related costs such as
accommodation, transport and VAT, even
when this may be claimed as input tax -
by the total number of people attending,
whether employees or not.
Henwood House Henwood
Ashford TN24 8DH Kent
01233 630000
