A brief guide for the self-employed.
The cost of entertaining clients, customers or third parties in relation to the business is specifically disallowed as a deduction for tax purposes.
If you hire a room for an event and entertaining also takes place it can be possible to claim tax relief on the cost of the room. Any cost of entertaining should be analysed separately in your accounts, so that it can be added back for tax purposes.
The cost of entertaining yourself or members of your family is not deductible. This cost is excluded under the general principle of “wholly and exclusively”. The only exception is where family members are your employees, in that case the cost may be allowable providing that it is not excessive.
If you entertain any staff, the cost is not treated as entertaining. It is staff welfare so it is allowable for tax purposes, however, the entertainment might give rise to a benefit in kind for the employee.
“A Trap” – HMRC will challenge any deduction if it considers that the primary motive for incurring a cost is private. To avoid penalties, it is sensible to keep a record to demonstrate – who was entertained, what advantage this gave to the business and evidence of incurring the cost.