Expensing client entertainment

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Maslins replied

10 October 2009, 07:47
It's easiest to explain it with an example. Let's say you make an annual profit of £80k before £1k client entertaining, and draw out as big a dividend as you can. To keep things simple I'll ignore any other tax adjusting items.

If the company pays for it, you make an accounting profit of £79k but a taxable profit of £80k, so you're paying 21% on £80k.

If you pay for it personally, the company makes an accounting and taxable profit of £80k, so the company still pays corporation tax on £80k, the same as above...but you've paid the £1k out of after tax income. For you to get that £1k it suffered the 21% corporation tax, but it also suffered an effective rate of 25% when you drew it out as a dividend.

Hence why (even though disallowable) it's more tax efficient to get the company to pay it.
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malvolio replied

9 October 2009, 20:55
Agreed. If it's a company cost, the company pays. It is unnecessary and counter-productive to use your taxed income to pay for it and claim it back. Apart from that, you are not YourCo, you have separate legal existences and separate bank accounts. Keep them that way...
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SueEllen replied

9 October 2009, 20:46
Simple.

If you pay for client entertainment personally it comes out of your own personal income. So if you are near the 40% tax limit this could push you over.
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joey122 started a topic Expensing client entertainment

9 October 2009, 20:34
Expensing client entertainment

I asked my account and she tried to explain twice to me.

Why is it better to put client entertainment through your company and not pay it directly if it has no tax relief at all???

[quote]The reason why it is worthwhile putting entertaining through the company is that it is a legitimate business expense (you can pay it directly from the company account or personally then reimburse through an expenses claim). It is added back before the corporation tax is calculated but the adding back is done on paper only, the money never actually gets paid back.

If you don’t put it through the company then you would be using money you have withdrawn as your personal income. This means you are wasting some of your personal tax bands by using them to withdraw money that is for business use.
[quote]
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