Eating out can take several different forms:
- Taking clients out for meals
- Buying refreshments for yourself
- Meeting clients/contacts for coffee
- Taking you staff out for meals/down the pub
Unfortunately slightly different tax rules apply to each.
Buying Refreshments For Yourself
The rule here is that if the food/drink is associated with travel then it is allowable. So, if you travel to London and stay the night in a hotel for the purposes of business, your evening meal is subsistence and so is a deductible expense.
If you invite a client for dinner in the evening his half of the meal is entertaining, so not allowable, but yours is subsistence, so is allowable. If you travel away from the office on business for the day you can claim tax relief on my lunch, coffees etc. However such costs are not allowable if you are working in the office, on the grounds that we eat to live, not to work.
Meeting Clients/Contacts For Coffee
This is a difficult one. Meeting costs are allowable but entertaining isn’t. Is having coffee with a client entertaining or a meeting? Our own view is that the cost should be a deductible business expense. The cost has been incurred for the purpose of having the meeting. A location needs to be found for the meeting. It may be inconvenient to meet in the office because we: work from home, have agreed to meet the client half way or want a neutral setting. Paying to hire a meeting room by the hour from a service provider would unquestionably be allowable (and refreshments would probably be provided as part of the package). So we don’t consider meeting in a coffee shop to be any different, just cheaper.
The problem is, where is the dividing line? When does a meeting turn into entertaining? What if you meet for a beer rather than a coffee? We would urge you to be reasonable. Two beers is probably a meeting, more than that looks like entertaining to us.
Taking Staff Out
Taking your staff out is always an allowable expense for the business. It is considered good staff relations and as important and valid an expense as their salaries. However employees pay tax on their salaries and, in the same way, will be taxable on amounts spent on their entertainment if the amount spent exceeds £150 per head per year. This is usually referred to as the staff Christmas party exemption, but it need not be restricted to a Christmas party, you could hold three functions a year and spend £50 per head on each one and your employees would not be taxed on the amount spent. If you held one function which cost £200 per head, the whole £200 would be taxable. But if you held three functions costing respectively £100, £50 and £50 per head you could use the exemption for the first two and the employee would only be taxed on the third one.
Have a question? Contact Jane Swain.
Your comments are always welcome!
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