Is a celebratory meal with your business partner tax deductible?

Whether it’s been a tough year or a very successful one, an end-of-year celebration with your business partner sounds like a great way to round it off. But is business entertainment for directors tax deductible?

While most business expenses are tax deductible, business entertainment is specifically excluded by law. But there is an exception to this. It is tax deductible if is provided for employees, which is great news if you operate a small, medium-sized or large company.

But it’s not such good news if you’re a sole trader or a partnership. Because you’re not employees, so the business can’t claim a tax deduction for entertainment. So that means you and your business partner can’t go out for an extravagant meal and be entitled to a tax deduction.

And if you do have employees, it’s best not to make the celebrations too much of a regular thing. Because the rules state that the expenses are only deductible if they’re wholly and exclusively for the purpose of the business, and excessive expense won’t be deductible. Which can make it a bit tricky to decide what the tax position actually is.

Because a director is also an employee of a company, the same rules would apply to them – as long as the company has more employees than just the director, or the director and a business partner.

As a director, you could get around the rules by including meals as part of the director’s remuneration package. That way it becomes a trading cost to the business and therefore tax deductible. But as remuneration in this form is taxable, it’s probably not the best idea. It would work out better for a director to take a bigger dividend and pay for their own entertainment.

The good news is that the Christmas party (or any other annual event) isn’t taxable. The company can pay up to £150 per head for the director and guests and claim a tax deduction for the cost.

Hopefully that makes the position a bit clearer.

Now to go and book a table somewhere…

 

For advice or support regarding your business accounts, contact ADM on 01242 679767 or email andrew@admaccountancy.co.uk

 

Photo by Element5 Digital on Unsplash

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