Entertainment expense is an important part of many business operations – but it also is the one that many businesses in NZ often claim wrongly, or don’t even claim at all (both of which are pretty sloppy moves). Today, in our pre-easter spirit of fun and celebration, let’s talk about claiming entertainment expenses!
The first rule to remember when claiming entertainment expenses is that you can only ever claim 50% of any entertainment expense. If you have spent about $1,000 during the financial year on entertainment expenses, you can only claim $500 of that amount as entertainment expense – the rest goes to your personal drawings.
That’s the simplest bit to remember about entertainment expenses.
The complicated bit is defining what ‘entertainment’ is.
Generally speaking any amount spent on entertaining your clients or your employees can be categorised as an entertainment expense. So let’s look at some examples:
Dijonne has a complimentary coffee catch-up with a prospective client at a local coffee shop. The total amount she spent was $15.
In this example, Dijonne can claim $7.50 of the expense as a business expense. She spent the money towards entertaining a potential client in the hopes that it will generate leads for her that will help bring in some income to her business. Taking an existing client out for coffee also counts as entertainment expense.
Kara takes out her entire team for Easter brunch at a fancy cafe. Everyone had a good time. Her total bill came to $200 for the brunch.
Ignoring the fact that Team Easter Brunch during the COVID-19 lockdown is never going to happen – Kara can claim 50% of the brunch bill ($100) as entertainment expense as she is rewarding her team for their good work and spending money towards motivating them to work harder in the business, which will hopefully generate income for the business.
These examples are very simple and clear cut. Let’s look at a more ‘grey’ example.
Jonny buys himself lunch while he is working as a self-employed contractor on a building site.
Nope. Sorry – Jonny can’t claim his personal meals as an entertainment expense. Let’s put it this way, if you were an employee on a PAYE salary, would you be able to claim your personal lunch as an expense? No, you wouldn’t. So you wouldn’t be able to do it as a business owner either.
Ok, here’s another one:
Jonny buys himself and Tim, his apprentice lunch at a fancy sushi shop to celebrate Tim’s 18th birthday.
Uhh, yeah – sure, Jonny can claim lunch with his apprentice as entertainment… provided he doesn’t do it too often. If it is a one-off thing, he can claim it as a team morale booster – It’s the boy’s 18th birthday right? But if Jonny is taking Tim out for lunch every week, then Jonny should not be claiming it as an entertainment expense.
Jonny buys himself lunch to eat by himself to celebrate his 40th birthday.
No. Just no. Look, even if you try to swing it as a one-off event to celebrate your team (because you know, you are still part of your team) it just stinks of super unethical behaviour. Don’t be an unethical jerk. Just don’t. This is very clearly a personal expense and should be coded to drawings.
Jonny could however argue it is entertainment if he was shouting his team members as well during the birthday do, like the example above with Tim… but if he brings his family members along to the birthday do… well.. let’s just say that to be on the safe side, Jonny should not be claiming any of his birthday do expenses as entertainment expense in the business.
Ok, so we’re reasonably clear on what is and is not an entertainment expense. Let’s look at some creative ways we can spread the cheer and claim entertainment during this lockdown period!
Buying Easter hampers and goodies for your clients online and having it delivered to them!
Yup, you can still purchase goods online and have them delivered to your client! Makes sure that the business that you are using for this service has permission to operate during lockdown! This particular type of expense can even be categorised as marketing/advertising expense (which is 100% expense claimable) as you are strengthening your brand awareness with your existing clientele.
Organising an online get-together for your team during lockdown!
Make use of your Zoom subscription (which is 100% business expense) and get together with your team online! You can even have them buy drinks and nibbles for themselves and reimburse them later. This reimbursement can be categorised as an entertainment expense which you can claim 50% of.
So yeah, just because it’s a lockdown, it does not mean that you can’t have yourself some responsible fun! So stay safe, have fun and keep entertained!
Of course, the best way to stay entertained is to keep reading this blog! It’s free though – so you can’t claim it as a business expense.
Pam
admin