The exception (to the normal disallowance for entertainment
expenditure) for staff entertaining does not apply if the
entertainment of the member of staff is incidental to the
entertainment of customers or of other people who are not
employees.
Whether or not the entertaining is incidental depends upon
the nature of the occasion. You should consider whether the
employer would have paid for the event if there had been no guests
present. If the employer would not have paid, then the event is
business entertainment and the entertainment of the employee is
incidental to this.
As an example, where a company provides its employees with
free meals in its canteen, the cost is allowable as a cost of
employment. If an employee has lunch with a customer in the canteen
the cost of the employee’s lunch continues to be allowable
(the lunch would have been paid for even if the guest had not been
present), although the customer’s lunch is business
entertainment and so is not allowable.
In contrast, where the employee takes the customer out to
lunch at a restaurant, the whole cost of the lunch for both the
employee and the customer is business entertainment and is not
allowable. This is because the company would not have paid for the
lunch if the guest had not been present and so the employee’s
lunch is incidental to that of the customer.
An employer may encourage employees to socialise with
business contacts by, for instance, paying the employee’s
annual golf club subscription. Although the intention of the
payment is to encourage business entertainment, the expenditure
incurred is the personal liability of the employee and you should
not therefore treat it as incidental to entertainment of others.
The expenditure is allowable to the employer but it must be shown
as a benefit to the employee on form P11D.
