It’s that time of year – Christmas lunch or dinner with staff and clients, or even just having drinks and nibbles in the office.
Most people would assume these are work-related expenses and therefore tax-deductible. Well, not according to Inland Revenue…
The taxman classifies these as entertainment expenses, making only 50% of the cost is deductible.
That’s because there is a private element (since enjoying food and drink is not strictly a business activity).
Now you may think: But hang on, “light refreshments” provided at work, like morning and afternoon teas, are 100% deductible. Why are after-work drinks only 50% deductible?
It is hard to understand this distinction.
Generally, the only entertainment expenses that are 100% deductible seem to be those incurred while travelling on business and even then there are some grey areas.
It is probably time these tax rules around entertainment were tidied up and these expenses were made either fully deductible and regarded as legitimate business expenses, or not allowed at all.
Few business owners and their staff would say they received a private benefit from attending work functions! It’s part of the job.