As a general rule, expenditure on business entertainment is not tax deductible. However, there is an exception in the case of hotel owners and operators. Expenditure will not be classed as business entertaining expenditure and will therefore be tax deductible if the entertainment:
• is of a kind which it is the taxpayer’s business to provide;
• is provided in the ordinary course of trade, either for payment or free of charge in order to advertise to the public generally.
Therefore, if a hotel provides hospitality to the general public in order to promote the hotel, the expenditure will be allowable. Even if the hospitality is provided to particular individuals, this condition will still be satisfied if the individuals have a role to play in promoting the product. For example, a free meal given to a critic, or a free trial run of hotel facilities provided to a potential buyer of the product such as a package holiday company, will be within the exemption. However, HMRC distinguishes between costs of a one-off trial of a service with a view to future purchase, which will be tax deductible expenditure, and costs of repeated hospitality, which will not be tax deductible.
Related linksHotels and leisureBusiness tax