Owner-Managed Businesses

Entertaining and gifts

Produced by Tolley
  • 19 Oct 2021 08:13

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Entertaining and gifts
  • Entertainment
  • Definition of ‘business entertainment’
  • Incidental costs of entertainment
  • Employees and entertainment costs
  • Specialist providers of entertainment
  • Gifts

Entertaining and gifts

When preparing tax computations, gifts and entertaining expenditure should always be analysed separately to ascertain the extent to which expenditure is allowable or disallowable. The tax computation should include clear descriptions and breakdowns of expenditure. Where expenditure has been allowed, consider whether any additional explanation should be included to minimise the risk of HMRC opening a compliance check.

In addition, clients may be grateful for some explanation of the rules; for example, during year-end planning, to help them to understand the added tax cost of disallowable business entertainment expenditure. In terms of accounting procedures, it should also be suggested (if this is not already in place) that employee entertainment expenses with no business entertainment element and third party entertaining are charged to separate expense accounts. This will be helpful in streamlining the tax compliance process and for management accounts purposes.

See Simon’s Taxes B2.432.

Entertainment

Expenditure on ‘business entertainment’ is specifically disallowed by statute as a deduction from trading profits, unless the expenditure is made in the ordinary course of a business’ trade of providing entertainment. In addition, capital allowances are restricted in respect of assets used for the purpose of business entertainment.

Business entertainment broadly means provision of entertainment or hospitality to almost any third party, including intermediaries and professional advisers. In practice, the scope of the legislation relies heavily on HMRC guidance, and the key sections are summarised in this guidance note.

Definition of ‘business entertainment’

Several VAT cases have considered the meaning of business entertainment in the context of the VAT rules regarding business entertainment costs. Whilst not being of direct application, VAT decisions can be persuasive or assist in interpretation in respect of income and corporation tax. HMRC guidance outlines some of the principles which have been established and its interpretation. These include the following:

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information

LEARN MORE LEARN MORE

Popular Articles

Definition of plant and machinery

Legislative definition of plant and machineryThe general rule allowing capital allowances on plant and machinery is given at CAA 2001, s 11. There is no statutory definition of the term ‘plant and machinery’ but there is confirmation in the legislation on what constitutes a building or a structure

19 Oct 2021 08:10 | Produced by Tolley Read more Read more

What is input tax?

This guidance note provides an overview of what conditions need to be met before a business is entitled to treat VAT incurred as input tax. This note should be read in conjunction with the other notes in the ‘Claiming input tax’ subtopic. For a flowchart outlining the procedure for claiming input

19 Oct 2021 22:57 | Produced by Tolley Read more Read more

Taxation of loan relationships

The vast majority of companies will have loan relationships and so will need to consider how they are taxed under the loan relationship rules. There are also specific provisions dealing with relevant non-lending relationships and other deemed loan relationships. Companies are generally taxable on

17 Nov 2021 13:51 | Produced by Tolley Read more Read more