Can You Claim Entertainment as a Business Expense?

You may have entertained clients or customers as part of your company plan as a business owner. But is entertainment allowable as a corporate expense? The answer is yes, but only under specific circumstances. What is customer entertainment?

Any activity you engage in with clients or customers that is not related to work is referred to as client entertainment. Examples include bringing them out to dinner, a sporting event, or a concert. The purpose of client entertainment is to promote commercial connections and relationship-building. It’s a productive approach to network and thank your customers for their patronage. Is entertainment subject to VAT or exempt?

There are some exceptions to the rule that entertainment costs are liable to VAT. The entertainment may not be subject to VAT if it is a component of a bigger service that you are offering to your client, such a training session or conference. The entertainment, however, is liable to VAT if it is a separate expense. What is an expense for business entertainment?

Any costs incurred while entertaining clients or customers are considered business entertainment expenses. This can include the price of a hotel stay, meals at a restaurant, or tickets to a sporting event. It must be directly tied to your business and required for its operations in order to qualify as a business expense. Additionally, the entertainment ought to be appropriate and not overdone.

The laws have altered as a result of the pandemic, however business entertainment is still tax deductible in 2021. The 50% cap on restaurant-provided food and drinks as corporate entertainment expenses has been temporarily suspended by the IRS. This indicates that companies can deduct all of their restaurant costs for meals served to clients and staff. But only expenses spent from January 1, 2021, through December 31, 2022, are covered by this.

Finally, you can write off entertainment as a business expense if certain requirements are met. It must be pertinent to your line of work, essential to its operation, reasonable, and not excessive. Keep in mind that entertainment costs are subject to VAT and that the administration has amended the requirements for deducting corporate entertainment costs. Consult a tax expert if you’re unsure whether an entertainment spend is deductible.