Expenses and benefits: entertainment
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1. Overview
As an employer covering the costs of your employees providing entertainment for clients, you have certain tax, National Insurance and reporting obligations.
What鈥檚 included
Entertainment can involve eating, drinking and other hospitality.
Types of entertainment include:
- 鈥榖usiness entertainment鈥� of clients - for example, discussing a particular business project or forming or maintaining a business connection
- 鈥榥on-business entertainment鈥� of clients - for example, entertaining a business acquaintance for social reasons
2. What to report and pay
What to report and pay depends on the type of entertainment and who arranges and pays for it.
Business entertainment of clients
The same rules apply regardless of whether you:
- arrange and pay for the entertainment directly
- pay the supplier for entertainment arranged by your employee
- reimburse your employee鈥檚 entertainment costs
You must report the cost on form P11D. You do not have to deduct or pay any tax or National Insurance.
Some expenses relating to the business entertainment of clients are covered by exemptions (which have replaced dispensations). This means you will not have to include them in your end-of-year reports.
Non-business entertainment 鈥� you arrange and pay
You must:
- report the cost on form P11D
- pay Class 1A National Insurance on the value of the benefit
Non-business entertainment 鈥� employee arranges, you pay
You must:
- report the cost on form P11D
- add the full cost to the employee鈥檚 earnings and deduct Class 1 National Insurance (but not PAYE tax) through payroll
Non-business entertainment 鈥� employee arranges and pays, you reimburse
The amount you reimburse counts as earnings, so:
- add it to your employee鈥檚 other earnings
- deduct and pay PAYE tax and Class 1 National Insurance through payroll
How to complete form P11D
There鈥檚 an entertainment-related tick-box on form P11D. This is used by HMRC to determine whether or not your employee will be able to claim a tax deduction for the entertainment expenses you鈥檝e provided.
You do not need to enter anything in the box if you鈥檙e completing the form for a charity or a tonnage tax company, but otherwise:
- put a tick in the box if the cost of the entertainment will be disallowed in your business鈥檚 tax calculations
- put a cross in the box if it won鈥檛 be disallowed
Salary sacrifice arrangements
If the cost of the entertainment is less than the amount of salary given up, report the salary amount instead.
These rules do not apply to arrangements made before 6 April 2017 - check when the rules will change.