Taking a potential or existing customer out for a meal can be a great way to establish good relationships and keep them strong.
And you won’t necessarily be faced with having to pay a heartburn-inducing restaurant bill, even if you really want to impress your guests. If you’re based in or close to London, some of the city’s restaurants may offer Michelin-starred lunches for £30 or less per person.
However, according to travel guide, Lonely Planet, a three-course dinner in a top London restaurant with wine now costs up to £90 per person (and that’s without tip or taxi). At £35 per person, a two-course dinner with a glass of wine is more affordable. Such prices aren’t exclusive to London, of course, but there may be cheaper options (websites such as lastminute.com, Bookatable and Groupon might enable your business to find money-saving deals at restaurants all over the UK).
What can you claim for?
If you work for a limited company, entertaining customers is not allowable for corporation tax purposes.
That means that although the bill can be claimed as a legitimate business expense – providing it’s reasonable and “wholly and exclusively” for business purposes – it can’t be taken off your profits when you or your accountant are completing your tax return and working out how much the company owes. The same is true for other entertainment costs, for example, taking a client or customer to a football match or other event.
And if you’re self-employed (aka a sole trader), entertaining clients or customers can’t be claimed as an allowable expense either. So, although your business can pay the bill, costs can’t be deducted when you or your accountant are working out how much income tax and NI is payable. Still, it’s more tax efficient that you paying for it out of your own pocket.
Benefit in kind?
If HMRC believes that the meal was for social rather than legitimate business reasons, it could be viewed as a “benefit in kind”, which means you could be personally liable for tax and NI.
In all cases, it’s wise to keep a brief record of the date, who you met for lunch or dinner and why, as well as till receipts, of course. It can make life much easier should HMRC investigate. Including entertainment costs that HMRC could view as excessive can prompt such an investigation.
If your business is VAT registered, you can’t reclaim any VAT paid on customer entertaining expenses.
What about giving gifts to customers?
With Christmas fast approaching, you may want to send a gift to a valued customer. So, what are the rules?
If you want these to be tax deductable as an expense, the value should be no more than £50 (per recipient) and be promotional in nature (ie the gift itself should bear your branding, not just the packaging or wrapping).
Unless you sell them, such gifts should not be alcohol, food, drink or vouchers that can be exchanged for these. If gifts aren’t seen as promotional or they’re worth more than £50, they will be classed as entertaining, so they will not be tax deductable. And if the gift is worth more than £50, HMRC will disallow the full cost, not just the amount over £50. If in doubt, as with all tax matters, seek advice from your accountant.
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