Which networking expenses are tax deductible?

June 21, 2017 | Posted by Sonal Agarwal | Accounting, Business Advice, Taxation, Whitepapers,

Are you attending lots of networking events? Are you working hard on your building your brand?

Networking is an essential activity that businesses undertake in order to grow. Over time, it can quickly build up to a long list of business development expenses. Some growing businesses find that networking expenses are one of their biggest financial outlay after staff costs. We take a look here how you can claim tax relief on such expenses.

Networking includes:

  • Membership of groups and networks that are relevant to your business
  • Attending events to promote your brand
  • Advertising your products and services
  • Building relationships with other local businesses

Are your networking expenses difficult to define?

This can be the case when the cost of food , travel or fun activities is included in the price; but usually they are tax deductible.

However, there are two types of expenses that the taxman will not allow:

  • Business entertainment (hospitality of any kind that you provide to customers or prospects)
  • Expenses not wholly and exclusively for the business (where the personal element is unclear)

What does this mean for you?

So, how can you define which of your networking expenses are tax deductible? And, on the other hand, which ones aren’t? To help you, we’ve broken it down in to the handy lists below. You can use this information when you’re working out your own networking expenses in relation to your business.

Networking expenses that ARE deductible:

  • Membership of business networks
  • Event fees, which normally cover the cost of food and venue hire
  • Distribution of free samples
  • Distribution of printed material and gifts
  • Travelling and subsistence expenses for attending events
  • Sponsoring a local event if it is not business entertaining
  • Promotional stands, fees paid to professionals to represent the business
  • Product or service discounts offered at such events

Networking expenses that ARE NOT deductible:

  • Club or membership fees where the main purpose of the organisation is to provide members with entertainment facilities. This could include sporting clubs, sailing clubs, country clubs, golf clubs, airline or hotel clubs.

You could argue that fellow club members and their contacts are generating business, but the taxman disagrees:

“Club membership is mainly a personal and social matter, giving rise to amenities and privileges limited to members. Any suggestion that the cost of membership of a club is deductible as a necessary expense incurred in the performance of the duties of the employment should normally be rejected”

Corporate membership which is shared by staff is a benefit in kind and liable to PAYE and Class 1A NIC.

  • Lavish and extravagant portions of expenses e.g. fine dining with wine
  • Expenses relating to the use of entertainment facilities. This could include a yacht, hunting lodge, swimming pool, vacation home or airplane
  • Gifts of more than £50 to the same person in 12 months

If you have an expense that’s not allowable for tax purposes, then usually you can’t claim the input VAT either. However, in some cases, like when you are entertaining overseas customers, you can reclaim VAT even though the expenditure is disallowed for direct tax.

Our tips:

As you can see, it can get a bit complicated. Even when you think you have an expense that is directly related to your business, it still may not be allowed for tax purposes. There may be PAYE, VAT and corporation tax implications.

We would recommend that before you sign up for an event/club, ensure that:

  • Proper evidence is kept to justify the expenditure
  • Apportionment is made for personal expenditure, else the whole expenditure will lose tax relief
  • Plan out your networking outlay so that disallowable expenses are kept to minimum.
  • Consult with your tax adviser for bespoke advice.

 

As a fully qualified tax adviser and accountant and with an impressive history in the corporate environment; Sonal brings significant experience and expertise to RightCue Tax Advisers, where she has the role of Managing Partner. If you would like further advice on any of the above, please contact Sonal on 01256 406601 or sonal.agarwal@rightcue.co.uk.

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