Client Entertainment expenses
By Contractor Hub, May 25 2016 06:00AM
Entertaining a prospective or existing client can be a great way to strengthen business relationships, but many contractors may be confused as to whether they can reclaim these types of costs.
What are expenses?
Contractor expenses can reduce your tax bill at the end of each year, as your company will not be taxed on items and purchases that were made for your business.
Typical contractor expenses include:
• The rent, heating and lighting of an office used by your company
• Stationary and other office items
• Mobile phone or business phone bills
• Computers and software
• Accountancy fees
Many limited company contractors might not be aware that choosing to entertain people through your business can mean that you are able to claim some tax relief.
However, what are you are able to claim back on will depend on who it is that you’re ‘entertaining’ – this is where you need to determine whether you are providing ‘business entertainment’ for clients or ‘employee entertainment’
In order for entertainment to be classed as ‘business entertainment’, it must meet a certain number of conditions. For example:
• Entertainment must be provided. This includes any hospitality, such as food and drink, accommodation, theatre and concert tickets, sporting events and nightclubs.
• It is provided without cost to guests.
• It must be provided for people who are not employees of your business.
All limited company contractors will need to pay Corporation Tax on its taxable profits, which is any profits that your company makes from doing business, investing and selling assets for more than they cost.
You can reduce your overall tax bill by reclaiming certain costs, however, it is not possible to reclaim the cost of entertaining clients against your firm’s corporation tax bill.
Value Added Tax, otherwise known as VAT, is a business tax that is charged on all goods and services.
When an employer provides entertainment for the benefit of their staff, the VAT incurred for employee entertainment is input tax, and is therefore allowable for tax relief and for claiming VAT.
Unfortunately, this is not the case for entertaining clients; if for example you were hosting an event with both employees and clients, you would only be able to reclaim the VAT that was spent on your staff.
Is it worth putting business entertainment costs through my company?
Many limited company contractors may question whether it is even worth putting business entertainment expenses through their firm.
In the long run it may help you to secure a new client, in which case, this would be beneficial to your company.
Also, by getting your business to pay rather than paying for the costs personally, this will save you the income tax you would’ve had to part with otherwise.