Are You Making Costly Mistakes with Business Entertainment Expenses?

Business entertainment expenses can be a minefield, and many business owners get caught out by misunderstanding what they can and can’t claim. Whether you’re treating your employees or taking a client out for lunch, knowing the tax rules can save you from unexpected costs.

At Carthy Accountants, we believe in keeping things simple, so here’s what you need to know about entertainment expenses and how they impact your business.

Staff Entertainment – A Tax-Free Perk

Looking after your employees is important, and HMRC does allow tax relief on staff entertainment, within limits.

If you’re treating your team to a Christmas party, a summer event, or even a team lunch, these expenses are allowable as long as:

• The entertainment is for employees only (not clients or contractors).
• The total cost per employee doesn’t exceed £150 per year.
• The event is open to all employees.

Can you reclaim VAT on staff entertainment?
Yes! If the entertainment is purely for employees, you can reclaim the VAT.

Client Entertainment – The Rules Are Different

Taking clients out for meals or events is a great way to build relationships, but these expenses are not tax-deductible.

• Any hospitality provided to non-employees is considered client entertainment and cannot be deducted from your taxable profits.
• The VAT on client entertainment is also not reclaimable.

So, if you’re regularly treating clients to dinners, golf days, or event tickets, be aware that these costs will come out of your post-tax profits.

The Hidden Cost of Misunderstanding Entertainment Expenses

Many businesses unknowingly make mistakes when submitting expenses, only to find out later that they’ve over-claimed and face additional tax liabilities. Ensuring you’re recording expenses correctly will prevent any unpleasant surprises from HMRC.

At Carthy Accountants, we help business owners get clarity on their expenses, ensuring they stay compliant while maximising tax efficiency.

Get the Business You Want

Understanding what you can and can’t claim when it comes to business entertainment is essential for keeping your finances in check. If you’re unsure whether your expenses qualify, get in touch with us today. 

We’ll help you stay compliant and make sure you’re getting the most out of your business finances.