What is client entertainment and which expenses am I allowed to claim?

This blog looks at client entertainment and outlines the business costs that are eligible for reimbursement.

Why does client entertainment matter?

Client entertainment is often referred to as the 'glue' that strengthens business connections. It enables professionals to interact socially and develop their business relationships in a relaxed setting.

It plays a role in fostering business partnerships, cementing deals, enhancing client satisfaction and fostering loyalty.

What activities fall under client entertainment?

Client or business entertainment relates to expenditure hosting existing clients, potential clients or individuals who are not your employees.

According to His Majesty’s Revenue and Customs (HMRC) client entertainment may involve dining, wining and other forms of hospitality.

Examples of entertainment include:

 'business entertainment' with clients – such as discussions on business projects or establishing/maintaining a business relationship

and

 'non-business entertainment' with clients – like socialising with a business acquaintance for personal reasons.

HMRC guidelines say that an activity qualifies as business entertainment when it meets the following three criteria:

• Entertainment is provided; 

• It’s provided to persons who are not employees of your business;

• It’s provided free.

Business entertainment, as defined by HMRC, encompasses a broad range of activities aimed at clients. This includes offering items, like food and drink, accommodation, tickets to events or shows, access to sports venues, clubs and even the use of assets like aircraft or yachts for entertainment purposes.

It's crucial to differentiate between client entertainment and staff entertainment since tax relief applies to the client entertainment but not staff entertainment. 

The reporting requirements and tax treatment of business entertainment depend on factors such as the type of entertainment provided, who organises it, and who participates. Staff entertainment also has its own set of regulations that must be taken into account.

HMRC guidelines state that the rules governing client entertainment apply regardless of whether you arrange and pay for the entertainment, reimburse your employees expenses for arranging it, or pay a supplier for arranging it through your employee. 

Importantly, for an activity to qualify as client entertainment eligible for tax relief, it must be offered free of charge, to your clients.

It’s practical and transparent to use the company account for client entertainment expenses. With Expend’s Employee Card your team can entertain clients using an expense card that works on the Mastercard platform at locations. This way they won't have to dip into their pockets and wait for reimbursements.

Keeping records of client entertainment is crucial, for management in any business. Documenting the date, type of entertainment, attendees and business purpose is essential for record keeping.

Understanding the nuances of client entertainment expenses is vital for businesses looking to maintain compliance while building strong client relationships," says Ilda Cairns, Vice President at VCA Claims Management Software. "By carefully tracking and categorising these expenses, companies can maximise their tax relief benefits while ensuring transparency and accountability. Proper management of client entertainment not only strengthens business ties but also helps safeguard your company’s financial health."

Remember that only reasonable client entertainment expenses are eligible for tax relief; extravagant spending may not be deductible. 

Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.