Are you a self-employed business owner in the UK wondering what entertainment expenses you can deduct? You're not alone! Navigating tax deductions can be tricky, especially when it comes to wining and dining clients or networking over drinks.
The good news is that HMRC does allow some business entertainment costs as allowable expenses, as long as they meet certain criteria. In this guide, we'll break down everything you need to know about claiming entertainment expenses on your tax return.
What Qualifies as Business Entertainment?
Business entertainment is any expenditure incurred on entertaining clients, suppliers, prospective customers or professional contacts. Typical examples include:
Taking clients out for meals
Entertaining at clubs, balls, or gala events
Corporate hospitality at sporting/cultural events
Business gifts up to £50 per person per year
The key requirement is that the expenses must be "wholly and exclusively" for the purposes of your trade or business. HMRC is very strict about what constitutes allowable entertainment costs.
Entertainment Expenses You Can Deduct
Generally speaking, you can deduct certain entertainment costs for existing clients/customers or potential new business leads. There are some important rules and limits:
Business Meals and Event Hospitality
You can deduct the costs of taking a client/customer/supplier out for a business meal or providing hospitality like tickets to a sporting event or entertainment. This applies for existing customers as well as prospective new business.
The costs you can claim include:
Food and drink bills
Tickets/entry fees for the entertainment event
Travel and accommodation if traveling for the event
However, the costs must be "reasonable" and not lavish or extravagant based on the circumstances. Anything too excessive may be disallowed or restricted.
Staff Entertaining and Events
You can deduct most costs of staff parties, events, or annual functions (like a summer outing or holiday party). The annual cost is limited to £150 per attendee, including employees, partners, and spouses.
Promotional Gifts and Samples
The cost of promotional gifts like branded merchandise, food/drink samples, etc. is deductible if the gift is:
Given to someone not employed by your business
Contains a conspicuous advertisement for the business
Costs no more than £50 per gift, per recipient per year
Business Gifts
You can deduct the cost of business gifts up to £50 per person per tax year. For example, a bottle of wine or box of chocolates given to a client or professional contact around the holidays would qualify.
Entertainment Expenses Not Allowed
There are certain entertainment costs that are specifically disallowed for tax purposes:
Entertaining family members or friends
Entertaining staff who are not employees
Business gifts exceeding £50 per person
Anything considered "excessive" based on your business circumstances
Costs for entertainment events held in holiday resorts/destinations
Non-staff annual functions costing over £150 per attendee
HMRC may also disallow or restrict entertainment deductions if they decide the expenses have a "duality of purpose" - e.g. both business AND personal purposes.
How to Claim Entertainment Expenses
To support your entertainment expense deductions, you'll need clear records and receipts. Make sure to keep detailed logs recording:
The date of entertainment
Names and business details of attendees
The nature of the entertainment
Related travel and accommodation costs
Receipts/invoices showing amounts
Ideally, you should also include notes about the business reason and benefit from the entertainment on each receipt.
When filing your tax return, the business entertainment costs go under the "Premises costs you used for your business" section.
Getting it Right Matters
While entertainment can be a valuable way to network, reward employees, and strengthen business relationships, it's important to understand the tax rules. Claiming too much or deducting non-allowable expenses could land you in hot water with HMRC.
Need guidance on tax planning and lodging your self-employment return properly? Our expert team is here to help self-employed individuals like you maximize deductions and stay compliant.
Book a free discovery call today to discuss your situation.
Proper accounting and attention to allowable expenses can mean significant tax savings. So don't miss out on those deductions for business entertainment - just make sure you get it right!