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Food and Drink / Subsistence & Entertainment

I’m sure you know how it goes: You’re out and about on business, you grab a quick morning coffee and why not a pastry at the same time to keep you going until lunch time. You then meet a client to discuss some business over a lunch in a bar. As they have just given you some extra business, you pick up the bill. You may think that all the above are acceptable business expenses and therefore are tax deductible. Unfortunately, the taxman doesn’t agree!
HMRC say that expenses that are deductible for tax purposes are those expenses that are wholly and exclusively for business purposes as such entertainment costs are NOT deductible.

Expenses that are considered to be business entertainment

  • Provision of food and drink
  • Provision of accommodation
  • Theatre and concert tickets
  • Sporting events and facilities
  • Entrance to clubs and nightclubs
  • Use of capital assets such as aircrafts and yachts for entertaining

Meals/ Food and Drink

The cost of meals taken away from the place of business is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live. This has been established in several court cases. Where such costs are disallowable they cannot be apportioned to allow extra costs incurred from the necessity of eating and drinking away from home or the place of business.

Itinerant trade journeys outside the normal pattern

But extra costs may be incurred wholly for business purposes where a business is by its nature itinerant (for example in the case of commercial travellers), or where occasional business journeys outside the normal pattern are made. You may allow a deduction for reasonable expenses incurred in these circumstances. There is no statutory definition of ‘reasonable expenses’

Overnight accommodation and subsistence

Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible. This does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place.

The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether or not paid on the same bill.

The exception: Staff Entertainment

This is the established exception to the general principle, whereby the net expenditure on regular events or gatherings involving staff members (such as for Christmas) should be tax-deductible, and any VAT incurred, recoverable.

Expenditure should be kept below £150 per staff member per year (ITEPA s264).

Food at marketing/promotional events

Promotional events arranged for the purpose of publicising a trader’s products are not in themselves business entertainment but the cost of any food, drink or other hospitality provided as part of the event is disallowable.

If you make a charge for the provision of food and drink at an event, then this is allowable as it is no longer business entertainment as the charge forms part of your sales income, which is taxable.

For full information on specific entertainment costs please see the following link:

http://www.hmrc.gov.uk/manuals/bimmanual/bim45000.htm

In most cases the VAT treatment follows the tax treatment with the exception of the entertainment of overseas clients where you can recover VAT on the cost of the overseas client’s part of the costs.

 

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