Are clients’ business club membership costs deductible?
Business or business entertainment?
Pooling ideas with other local business owners and managers is nothing new or unusual. Typically, meetings are also social occasions where food and drinks are served. However, HMRC won’t allow tax deductions if it even remotely constitutes business entertainment .
Who meets the cost?
Whether your client has joined with others to form an association or is signing up to an existing organisation, there will usually be costs which are paid for by members’ subscription payments. Where the club etc. is a not-for-profit arrangement, HMRC will view its expenditure, which is paid for from subscriptions, as if each member incurred a proportion of the cost directly.
Tax-deductible expenses
Costs the association incurs on admin, e.g. printing newsletters and hiring venues for meetings, are tax deductible because even though they are not directly related to any of the members’ businesses they have a clear business purpose. Unspent subscriptions are usually treated as if they are allocated to meet business costs and therefore won’t prevent any part of the members’ subscriptions from being tax deductible.
Pro advice. While not-for-profit business clubs and associations don’t have to pay tax on their subscription income, they usually have to register for corporation tax.
Non-deductible costs
Bearing in mind what we’ve said so far about an association’s expenses being treated as if its members had incurred them directly, you may expect HMRC to disallow part of a subscription if expenses are used by the association for non-tax-deductible costs, e.g. a purely social event such as an annual dinner. However, unless the expenditure is significant HMRC will ignore it under its guidance at BIM47430 (see Follow up ).
Food and drink at meetings
If meetings are held over, say, breakfast, HMRC might object to subscriptions being used to pay for all or part of the cost of these because they fall under the heading of business entertainment . But as long as all members attend every meeting, or virtually all of them, there’s no problem. Entertainment only refers to expenses incurred by one person or business in respect of another. As it’s your client’s subscription that ends up covering the cost of their meals etc., there’s no entertainment involved.
Pro advice. If the number of members attending meetings where meals are involved varies greatly, and are funded out of subscriptions, HMRC might argue that those not attending are subsidising the cost of food and drink for others. That’s logical and therefore some of your client’s subscriptions would not be tax deductible.
Pro advice. Your clients can avoid this by getting the association to make a separate charge to cover food etc. for those attending the meeting. That way no one is paying for anyone else’s. The extra cost for each member might also be tax deductible as subsistence if they’ve travelled more than a few miles to attend.
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