Entertaining clients and customers

Monday, November 20, 2017

For some, entertaining clients and customers is a joy. For others it’s a burden that is assiduously avoided.

It can very much depend on the activity and, of course, the client in question. Either way, it can be a vital part of business to establish new deals and maintain professional relationships. It can also be extremely costly for your company.

Business Entertainment

If you’re hoping to claim back on your expenses, first ask yourself: Why am I entertaining this person? For it to be deductible as a genuine business expense, your answer needs to be a good reason.

Are you wining and dining a potential customer with the hope you’ll strike a new business deal? Or taking an old, long-term client to a rugby game so they aren’t tempted away by a competitor?

If there is an end goal in mind when you entertain a customer, it can be considered a genuine and legitimate business expense. Whether the meeting is paid and arranged by you, you pay the supplier but have an employee arrange it, or if your employee arranges and pays and you reimburse them, this still counts.

By reporting the cost on a P11D form, you won’t have to deduct or pay any tax or NI on it; potentially saving your company hundreds of pounds over the course of the year.

Non-business-related entertainment

Be warned - if the HMRC deems your meeting with a client to be for no reason other than socialising, you could be personally liable to pay the tax and National Insurance on top of what you spend. What you pay may vary depending on the circumstances.

If you arrange the entertainment and pay for it directly:

- Report it on a form P11D

- You’ll pay Class 1A National Insurance on the value of the cost

If you have an employee arrange the entertainment, but you pay for it:

- Report it on a form P11D

- Pay the full cost onto the employee’s pay

- Deduct Class 1 National Insurance through payroll

If your employee pays for and arranges the entertainment, and you reimburse them:

- Payment added through payroll and is taxed as earnings.

These business entertainment rules were set in place by the HMRC to prevent companies claiming back on frivolous spending. For example, if you could buy your client a new car and claim back on it, why wouldn’t you? Perhaps they could return the favour with all the money coming out of the HMRC’s pocket.

Keep a paper trail

Even if you feel there are genuine business reasons for your entertainment costs, if HMRC feels your spending is excessive then they may still investigate. Always keep a record of who you’re entertaining, when and why to make things simple.

Panthera tip: Keep a file of all receipts when you entertain customers and clients. If deals are made during the meeting, keep a note of them as proof of business reasons.

Gifts

Rather than taking your clients out, you may feel more inclined to send a gift to keep your relationship with them going strong. This can be a great way to make them feel valued by your company.

It is possible to make these gifts tax deductible as a business entertainment expense, as long as they value no more than £50 per recipient, are promotional in nature, and do not include food, drink or alcohol unless your company sells them. £50 per recipient is HMRC’s limit for each gift, not an excess. Even sending a present costing £51 would mean you pay the entire amount.

The gifts must also be sent for a genuine, business related reason to be tax deductible.