WHEN ARE ENTERTAINMENT COSTS TAX DEDUCTIBLE?

Entertainment
On the face of the answer is a simple one to:- the cost of business entertainment isnt tax deductible except where it relates to
your employees. So wining and dining a customer isnt tax efficient? No it isnt - but then thats not the primary
purpose of it, generating more business is. ut, wouldnt it be great if you could get a tax deduction for
entertaining? !ell thats exactly what one taxpayer tried. So how did he get on?

The claim
"he "axpayer offered the chance to win two tic#ets to a ma$or sporting e%ent with a stopo%er at a nearby hotel. &t
was to be a simple raffle draw open to customers who spent more than '()) with them. "he firms accountant
said this would count as mar#eting expenditure and so would be tax deductible * unfortunately he was wrong+

What is entertainment?
,nfortunately for the "axpayer, the "axman isnt bothered about what !" call an expense. "he tax rules say that
if its hospitality of any kind then it counts as entertainment and is not tax deductible. &t would be %ery difficult to
argue that putting someone up in a hotel and paying for them to watch a sporting e%ent wasnt hospitality+

#!int t! n!te$ There are exceptions to rule. An important one is that where hospitality is offered to the general public as part of an
ad campaign a tax deduction can be claimed.

O%en t! the %"&lic?
"he "axpayer argued with the "axman that the open-to-the-public exception applied to his raffle pri-e because
anyone could become his customer and enter the draw. ,nfortunately, the "ax &nspector ob$ected on two
counts. .irstly, the "axpayers /ompany is a trade wholesaler and therefore not open to the general public
directly. Secondly, the draw was restricted because it re0uired a customer to spend o%er '()) before they could
be included. &ronically though, it was this second ob$ection that turned out to be our contacts sa%ing grace.

The '"i( %r! '"! r"le
1ro%iding hospitality is gi%ing something for nothing. ut if you ha%e to pay or gi%e something in exchange for
the hospitality then its not hospitality its a trade 2i.e. pro%ide a 0uid pro 0uo3. 4nd where an arrangement is a
trade any costs associated with it are also tax deductible+ "he courts ha%e confirmed this and the "axman
ac#nowledges and accepts this in his own internal guidance manuals.

Ta) (e("cti&le
So, the re0uirement that a customer had to spend '()) to enter the pri-e draw was a clear 0uid pro 0uo.
"herefore the "axpayer was able to 0uote 567/s own internal guidance bac# to the &nspector. 4nd, without a
leg to stand on, the &nspector graciously conceded the tax deduction 2through gritted teeth+3.