Expenditure on business entertainment is not allowable as a deduction against profits. Nor may a deduction be made for any expenditure which is incidental to business entertainment.
The meaning of ‘incidental’ is not defined by HMRC but should be interpreted to mean any expenditure that is incurred directly or indirectly in connection with the provision of entertainment.
This might include payments to a third party for the organisation of entertainment or the costs of issuing invitations to customers. It will also include the cost of maintaining assets, such as yachts, which are used for business entertainment purposes.
Traders may obtain entertainment through barter arrangements in which their own goods or services are exchanged for hospitality. The amount to be disallowed is the larger of:
the value at which the transaction is recognised in the profit and loss account, and
the cost of the goods or services exchanged for business entertainment.
