A client recently contacted us to ask about the tax implications for booking tickets for the Six Nations Rugby Championship. He was considering inviting both clients and staff to one of the matches to build better business relationships with clients, create networking opportunities, and improve relations with employees.
HMRC have different rules for client and staff entertaining, and he wanted to know if the costs could be set against business profits and whether he could recover the input VAT. With this being a ‘mixed’ event, as with any question you ask an accountant, there very rarely tends to be an easy answer.
Client entertainment
In most cases, client entertainment is not allowable as a deduction against profits, even if you believe the costs are incurred wholly and exclusively for the purpose of the business. Costs which are incidental to the business entertainment are also disallowable, such as travel costs. However, if you pay through the business rather than through personal accounts, you will save the Income Tax you would otherwise pay on withdrawing the funds to pay the costs personally.
Staff entertainment
Staff entertainment is allowed so long as the costs are incurred “wholly and exclusively for the purposes of the trade”, which you can generally argue and the entertaining of staff is not “merely incidental to entertainment which is provided for customers”.
Staff entertaining will be taxed as a benefit for the employees. The benefit will be based on the cost of providing the entertainment. The cost should be recorded on a P11D form and there would be a Class 1A NIC charge to the employer. Employers could instead of treating as a P11D benefit, arrange with HMRC to have the benefits included within a PAYE Settlement Agreement (PSA).
With this in mind, there is little scope here in relation to the Six Nations event for using the exemption for staff entertainment unless the entertainment is to form as an annual event, which is open to all employees, and which costs no more than £150 per head per year.
VAT Recovery
Input VAT is not recoverable if the event is to entertain clients.
If the event is a staff only and open to all staff, then VAT would be recoverable. However, if the tickets are used by the directors of the business only, HMRC are likely to argue that the event has no connection to making taxable supplies and refuse recovery.
For help with allowable business deductions, please email our EQ Tax experts or call your local office contact.