I am a director of a UK consulting company with annual turnover of around £350,000 and a small team of five employees. As part of the business development strategy, I regularly spend approximately £12,000-£15,000 per year on client entertainment, including business lunches, networking dinners, golf days, and sporting events such as hospitality boxes, which helps generate new business and strengthens client relationships. I am seeking clarity on the tax treatment of these costs, particularly what is classed as client entertainment and whether these expenses are tax-deductible. I would also like to know whether staff events are treated differently, whether travel costs linked to entertainment activities can be claimed, and what records must be kept to comply with HMRC requirements.
Arthur replies:
The general rule is that expenditure on client entertaining is not an allowable expense (see HMRC’s Business Income Manual at BIM45020). But expenditure on staff entertaining is very often allowable (see BIM45033). Business or client entertainment includes: (a) business lunches or dinners with clients; (b) drinks after meetings; (c) golf days; (d) sporting events; (e) theatre tickets; (f) hospitality boxes; (g) race meetings; and (h) hospitality at conferences. Staff entertaining includes: (a) Christmas parties; (b) summer parties; (c) team-building events; (d) staff dinners; and (e) staff sporting events. Travel costs incidental to business or client entertaining are also not allowable (see BIM45025). Record keeping includes date, venue, amount spent, names of attendees, companies represented, business purpose, receipts and invoices, and method of payment.
