Business Entertainment Deductions: The Rules for Corporate Events

• What Is Business Entertainment for Tax Purposes?

• Deduction Rules You Should Know

• What About Gifts and Entertainment?

• Documentation Requirements

• Summary

Conferences, client events and company parties are a natural part of doing business. But the tax rules governing business entertainment can be complex, and mistakes can have real consequences. Knowing the rules before you book can help you avoid unpleasant surprises when it is time to finalise the accounts.

This article provides an overview of the key principles. It is not a substitute for advice from an accountant, but it gives you a foundation for asking the right questions.

Business entertainment refers to expenses incurred by a company in connection with clients, business partners and other business contacts. This could, for example, include a dinner with a client, a gift for a business partner or parts of an event to which clients are invited.

It is particularly important to consider why the event is being held and who is attending. If the event is for the company’s own employees and has a work-related purpose, the expenses will typically be regarded as staff expenses. If, on the other hand, the event is aimed at clients or other business contacts, all or part of the expenses may be classed as business entertainment.

It is therefore not only the type of event that determines which rules apply. The purpose of the event and who attends also play an important role.

As a general rule, a company can only claim a tax deduction for 25% of business entertainment expenses. This applies, for example, to the cost of a meal with clients or other business contacts.

It is important to distinguish between tax deductions and VAT deductions. These are two different things. VAT deductibility depends on what the company is actually paying for, and specific rules apply to expenses such as restaurant visits, hotel accommodation and entertainment.

Expenses relating to the company’s own employees are treated differently. For example, a work-related internal seminar may, as a general rule, be fully tax-deductible. However, this does not automatically mean that the company can deduct the full amount of VAT. Again, the deduction depends on whether the expense relates, for example, to room hire, food and refreshments, restaurant visits or accommodation.

If both employees and external guests attend an event, it may be necessary to divide the expenses accordingly. As a general rule, the portion classed as business entertainment is only 25% tax-deductible. Work-related staff expenses, on the other hand, may generally be fully tax-deductible.

You should therefore document the purpose of the event, who attended and how the expenses were allocated. This makes it easier to substantiate the chosen tax treatment if the tax authorities subsequently review the expenses.

Gifts to clients and business contacts may be subject to different rules. If a gift is classed as business entertainment, the company can generally claim a tax deduction for 25% of the expense. Certain advertising expenses, on the other hand, may be fully tax-deductible.

Specific rules also apply to entertainment. Entertainment provided to clients and other business contacts may, in some cases, be classed as business entertainment. As a general rule, however, the company cannot deduct VAT on entertainment expenses.

If a conference or corporate event consists of several different elements – such as meetings, food and refreshments, accommodation and entertainment – it may therefore be necessary to divide the expenses accordingly. This is because the tax and VAT rules may differ for each element. What the company can deduct depends, among other things, on what the expense covers, the purpose of the event and who attends.

It is important to be able to document business entertainment expenses. You should therefore keep records of who attended, the purpose of the event and what the expenses covered. For conferences and events, it is a good idea to retain the programme, participant list and invoice.

A detailed invoice also makes it easier to handle the expenses correctly. It is helpful if the invoice clearly shows what has been paid for, such as room hire, food and refreshments, accommodation and any additional services.

At Comwell Hotels, we provide detailed invoices that can clearly itemise the individual services. Your MeetingDesigner can also help structure quotations and invoicing, making it easier for your accounts team to process the expenses.

If you have questions about how a specific expense should be treated for tax or VAT purposes, we recommend consulting your accountant or tax adviser.

The deduction rules that apply to a conference or corporate event depend, among other things, on the purpose of the event, who attends and what the company is paying for.

As a general rule, a company can claim a tax deduction for 25% of expenses classed as business entertainment. Other business expenses may be subject to different deduction rules. Separate rules also apply to VAT.

It is therefore important to keep the necessary documentation and have an invoice that clearly itemises the different expenses.

Please Note: This article is for guidance only and is not a substitute for advice from an accountant or tax adviser. The rules may change, and the appropriate treatment will always depend on the individual circumstances.