Entertaining and gifts expenditure should always be analysed to ascertain the extent to which expenditure is allowable or disallowable. The tax computation should include clear descriptions and breakdowns of expenditure. This document discusses the tax treatment of business entertainment, incidental costs of entertainment, and gifts to employees and third party.
When preparing tax computations, gifts and entertaining expenditure should always be analysed to ascertain the extent to which expenditure is allowable or disallowable. The tax computation should include clear de-scriptions and breakdowns of expenditure. Where expenditure has been allowed, consider whether any addi-tional 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 enter-tainment expenses with no business entertainment element and customer entertaining are charged to sepa-rate expense accounts. This will be helpful in streamlining the tax compliance process and for management accounts purposes.
Expenditure on 'business entertainment' is specifically disallowed 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. CTA 2009, s 1298; ITTOIA 2005, s 45; CAA 2001, s 269(1)