As a true entrepreneur, you spend money to keep your business running smoothly. Part of that is entertainment expenses. By this we mean costs such as business lunches, gifts for clients and parties for the team. Useful for your network? Ab-so-lutely. But is it also totally deductible? Unfortunately not. The tax authorities see some of these costs as private expenses. In this article, we explain in detail what entertainment expenses are, which expenses fall under them and how to process them smartly in your accounts.
What are representation expenses?
Representation expenses are expenses to keep your network warm or put your company in the spotlight, without getting anything in return. Think of a fancy lunch, a nice gift or a nice company party. That sounds good, but the tax authorities have a point. This is because these costs are only partly deductible, as they often have a private touch to them. For this reason, it is smart to know exactly which expenses are covered and how to process them correctly in your accounts.
Which representation expenses are covered?
Representation expenses come in many forms. They are expenses for your business contacts, but with no direct impact on your turnover. And this is where the tax authorities set limits. Because not everything can be deducted from tax just like that. Here are a few common examples.
Examples
- Business lunches and dinners - Eating and drinking with (potential) customers or business partners.
- Business gifts - Gifts for customers or suppliers, such as a bottle of wine or a good book. But some additional rules always apply here, read here.
- Company parties and events - Meetings to strengthen your business network or team.
- Professional literature and study costs - Books, magazines or training courses to keep your knowledge and skills up to date.
Can you deduct entertainment expenses?
You may not fully deduct entertainment expenses from your profits. In fact, usually only 80% is deductible. The rest remains at your own expense. But beware: there are exceptions. For example, for study trips or conferences, other rules may apply. So check carefully what the tax authorities allow, so you do not make unnecessary mistakes.
How do you record entertainment expenses in your accounts?
To properly record your entertainment expenses in your accounts, it is smart to write them down separately. That way, you keep an overview, avoid unjustified deductions and are ready for a possible tax audit. Keep the following points in mind.
Correct categorisation
Put entertainment expenses in a separate category in your records. That way you can see at a glance which part is deductible and which is not. Make sure you use clear descriptions. That way, at a later date, you will remember exactly what the expenses were for.
Keeping supporting documents and invoices
Always keep receipts and invoices of entertainment expenses. Write down who attended and the purpose of the occasion. This comes in handy during a tax audit and this way you won't miss out on deductible expenses.
Difference between representation costs and advertising costs
Representation costs and advertising costs are often mixed up, but the Tax Administration sees a clear difference. Advertising costs, such as advertisements, promotional material and sponsorship, are fully deductible. Representation expenses are only partially deductible.
Conclusion
Representation expenses are part of your business expenses, but are not fully deductible. It is therefore important to properly distinguish them from other expenses, such as advertising. With neat records and the right supporting documents, you can avoid problems in the event of a tax audit. So make sure you know the rules and make the most of deductibility within the legal limits.
