Out on the town with clients? Got an upcoming team morale event? When wining, dining, or entertaining for the business, those temptingly tax-deductible expenses aren’t always what they seem.
The restaurant bill from that “quick catch-up” meeting or the corporate box tickets for the big game can feel like fair game for your tax relief claim. But are they really?
Entertainment and subsistence expenses seem similar on the surface. Yet they face vastly different tax treatment. So if you muddle up these two categories, you could be leaving money on the table or risking non-compliance.
In this post, we’ll unpack the distinction between entertainment and subsistence costs. You’ll discover what falls under each bracket and get simple tips to classify your expenses properly. So you can approach your tax relief claims accurately and confidently.
Ready to maximise your tax deductions? Let’s get started.
So you’ve booked a table at an upscale restaurant to woo a promising client. Or perhaps you’ve splurged on corporate boxes for a big sporting event, eager to bond with partners over the thrill of the game.
These types of expenditures fall under the category of entertainment expenses.
Entertainment costs include any spending on meals, events, or hospitality that involves:
- Clients, contacts, or partners – essentially, anyone outside of your regular staff
- An element of leisure, recreation, or enjoyment
Some common examples include:
- Fancy dinners, cocktails, or lunches with clients
- Tickets for sporting events, concerts, or shows
- Holiday parties or celebratory events for clients/contacts
Now, these may seem like everyday business. And there is a valid justification for relationship-building. But under UK tax rules entertainment expenses are non-deductible for corporation tax and income tax.
What about entertaining employees?
You can claim back the cost of entertaining employees, up to a limit of £150 per year. So that can go towards your Christmas party or other celebratory work occasion.
Now, not every meal or trip associated with your business gets the entertainment slash. Expenses tied directly to necessary work duties are classified differently – as subsistence.
Subsistence refers to costs incurred while carrying out the essential functions of your work, with no personal benefit or enjoyment mixed in. These include expenses like:
- Meals purchased while travelling for conferences, client meetings, or other work trips
- Hotel stays, parking fees, and tolls tied to business travel
- Coffee/tea bought to fuel you through a long day of back-to-back meetings
In contrast to entertainment, subsistence expenses can be claimed back in full, at a deduction of 100% in your tax relief claims.
Subsistence costs are seen as wholly and necessarily incurred to conduct your business activities. So the taxman allows you to recover the full amount.
There are often events that don’t fit neatly into categories. For example, if you’re on a business trip and taking a client out to lunch, then you can only claim 50% of the bill. Another occasion where accurate record keeping is key.
With entertainment and subsistence spelt out, how do you assess day-to-day costs that arise? Here are some questions to ask when categorising expenses:
- What was the primary purpose of this expense? Was it required for work tasks?
- Was this expense necessary for me to conduct business? Could I have done my work another way?
- Did it involve any clients, contacts or external partners? Their presence typically signals entertainment.
- Did it have an element of leisure, recreation or enjoyment? Subsistence arises from mandatory work needs.
Proper categorisation comes down to examining the fundamental nature and context of each expenditure. So keep these key questions in mind as you analyse costs.
Once you’re able to accurately distinguish entertainment from subsistence, you can adopt some best practices to make the most of available tax relief:
- Identify subsistence expenses first, as these carry the more favourable 100% deduction.
- Consider any events that don’t fit wholly into the subsistence category, and work out the percentage you could claim.
- Maintain detailed records, invoices, and receipts to back up claims of necessary subsistence expenses. For our guide to keeping detailed business records, head to this blog.
Proper classification and documentation give you the best shot at optimising your tax deductions. But when in doubt, we’re here to help steer you through the intricacies of entertainment vs subsistence. Reach out to us for personalised advice and auditing of your expense claims. We’ll ensure you receive every pound of tax relief you’re entitled to!