Tax Efficient Entertainment for your Customers

A company’s entertainment costs are only tax deductible when aimed towards employees, not customers. However, to help generate more business, corporate hospitality for customers is becoming more popular. This has led to some businesses attempting to find a loophole, to allow them to entertain their customers in a more tax efficient way. One way businesses have tried to save tax is through customer focussed competitions, offering sporting tickets and hotel getaways as prizes. It was thought that by offering hospitality in this way, it would count as a marketing cost and would therefore be tax deductible.

Unfortunately, HMRC haven’t fallen for the above and still state that if a customer receives ‘hospitality of any kind’, it still counts as entertainment and is therefore not tax deductible. (The competition would only class as a marketing cost if it was aimed at the general public, as part of an ad campaign – not solely to a company’s customers).

How can you then reduce the tax you pay on hospitality?

Have you considered a quid pro quo? Hospitality is where your business provides something for nothing, but if a customer has to pay or give you something in exchange, you can then claim that you are now providing a trade, not hospitality. With a trade, any costs associated with it are tax deductible. Recently, this point has been acknowledged and accepted by HMRC and the courts. Therefore, if your company was to offer a competition, where your customers can only enter if they spend a particular amount, it will count as a quid pro quo and you will be able to claim tax back on it. Your business will still not be able to save tax through wining and dining customers directly, but this is a small alternative initiative that can achieve the same results but in a more tax efficient way.