The right way to treat entertainment and travel costs for tax purposes

26 October 2021
1 min read
Published:

Michael Lansdell explains the correct tax treatment for business entertainment and travel – just in time for any festive celebrations.

Now that you can do things like take clients or suppliers out for dinner again, you may be wondering about tax treatment for business entertainment costs.

Income and corporation tax rules mean businesses are blocked from claiming a deduction from their profits for entertainment costs, with a corresponding rule for directors and employees. Both rules don’t apply to the same expense, though.

If you personally take a client out for drinks and dinner, and your company repays you, there is an exemption which means you aren’t liable to income tax/NI on the reimbursement as long as your company does not claim a tax deduction for the reimbursement.

A common trap…
Not claiming reimbursement? So, paying for client drinks and their dinner and thinking there is no point claiming reimbursement, because the expense isn’t tax deductible to the business? Or, if the company is new, you thinking you’ll cover the expense, to help the business’s cash flow? But what not claiming actually means is that you and your company won’t receive the tax exemption from the reimbursement, as per the rule above, notwithstanding the fact that the entertainment expense is itself not deducible

…with a simple solution  
Always claim reimbursement of entertainment expenses. If the company cannot pay you back straightway, it’s totally OK for them to do it later.

What about travel costs?
If there is associated travel with business entertainment because, for example, you get a cab over to your client’s office to take them out, HMRC’s view is that your travel costs to meet the customer aren’t part of the entertainment and are therefore tax deductible. If the business pays for the customer’s travel to a business entertainment event, however, then no tax relief is available for that travel expense.

As always, rules can often seem more complicated – or less favourable – than they are. With Christmas coming up, and (hopefully) more business entertainment on the cards, knowing the correct tax treatment for both business entertainment and related travel, could save you money.  

For more information call Figurit (formerly known as Lansdell & Rose) on 020 7376 933.