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Directors' meals

I have a valued client who is a one man band consultant with his wife on the board and on the share register.  It's a profitable company.
 
They've spent just over £1k in the year on meals in restaurants within 5 miles of their home, which they say was mostly "after seeing potential customers".
 
I've sent them the key rules on business entertaining, pointing out that it is all disallowable unless it falls within one of the stated exceptions.  I've pointed out that all entertaining of UK customers is disallowable and that although staff entertaining is allowable, in a close company meals where only the directors are present do not qualify as staff entertaining.
 
I've now been challenged on this treatment 4 times, it looks like they are not backing down on it.  They say they have friends who do the same thing, I believe this is true as various local "accountants" book this stuff as travel and subsistence.
 
It's a £200 saving on a £7k tax bill, so in that sense not material.  Do I threaten to resign over this issue?  What would others do?

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13th Mar 2012 07:26

firm but friendly

i've had this a few times ... 

 

it's difficult because it can feel like the client doesn't trust you & your judgement / knowledge.  but as this is clear-cut, backed up with HMRC reference / legislation, they have to accept that you are correct - even if they dont like it.  the trick is to sugar-coat it so that you are not the bad guy - "it's frustrating, I know ... myself and Mrs Mischief feel the same ... blooming HMRC!"

 

whether other friends include these costs as allowable is irrelevant - it;s a self-assessment system.  

 

we had something similar last year about a contractor claiming his lunch ... disallowed.  we seemed to spend more time kicking that around than the £100k s455 charge & what to do about it!

 

i try to position our spiel about this kind of things as if it's me and the client against the revenue ... not me and the revenue against the client ... if you get me.

 

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13th Mar 2012 08:43

I know how you feel

When I am doing the book-keeping and someone else - a monosyllabic type often, who I usually don't know, is doing the tax, I frequently come across things that are benefits in kind at the very least. These things apparently haven't been spotted by the accountant and many of them won't back me when I say they are P11D matters or director's loan and we need to change the way the company is doing things in the future. They feel quite happy to turn a blind eye in order to keep the client.

In the case you've described I would not feel comfortable continuing to act, even if I were just doing the book-keeping and the accountant wouldn't back me. This is such an obvious error for the client to want to perpetuate that I suspect they will give you grief in other areas shortly.

Easy for me to say - clients are hard to find. But it's your reputation with yourself that you are obviously struggling with at present. And you won't be able to let yourself off the hook.

 

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13th Mar 2012 11:17

Reverse the logic

I suggest you think less about your ethics and morals, and more about your clients ethics and morals. Also, do they value your knowledge so little that they will argue with you about correct tax treatment?

I hate clients whose 'friends' get a different tax treatment from their accountants. They really don't have any details, or any proof, and we all know the tall stories that are told after a drink or two.

It comes down to trust, and if they think £200 less tax is worth upsetting you, or they don't trust you, then the relationship is doomed anyway.

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Do you need this client?

Hopefully you've added more than £200 of value through being their accountant.

If they don't see that tell them to find another one. 

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13th Mar 2012 14:55

alternative

Suggest he goes for meals with his secretary instead rather than with his wife.

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Company secretary

daveforbes wrote:

Suggest he goes for meals with his secretary instead rather than with his wife.

Interesting point.  What do people think please, should be the situation where the company secretary is not an employee (because unpaid) and the director entertains him/her to a meal in thanks for his/her help?

Staff entertaining or business entertaining?

I think that this should count as staff entertaining myself but would be interested to hear what other accountants think!

M

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It's an allowable CT deduction

If the company is paying the restaurant bills directly (eg because the director uses a company credit card) then it's an allowable CT deduction.  Don't get confused by the VAT treatment, where I agree the VAT shouldn't be recovered.

The purpose of the expenditure is to remunerate the directors, as evidenced by the fact that it will be reportable on forms P11D.  The directors will then be taxed on it and the company will have to pay Class 1A NIC on it (also tax deductible!).

When you explain that to the client, it ought to be a no-brainer to put it through DCA.

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13th Mar 2012 17:24

thanks

Thanks for all comments.  The drafts I sent last week had the entertaining as zero and all through Directors' Accounts.  I have today explained all this again - saying that I totally agree the rules on entertaining are daft, that when I buy a client a coffee I should get tax relief but don't, and so on.

I am more than happy to go in with all shades of grey on tax issues.  It's not me that writes the rules, if the people who write them want to make some of them mutually contradictory and confusing that's an opportunity not a threat.

But this is not a shade of grey for me, it's clear cut.  A personal item.  I think my client will end up being reasonable about it, but I am prepared to resign over it.

 

 

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By bukkuz
13th Mar 2012 18:41

Disallowable company expense

Would you not charge the expense as a company expense, add back and disallow for tax purposes but then at least it hasnt been charged through the DCA. Depending on the tax bracket of the director if charged to the DCA he could end up paying 32.5% through a dividend just to clear that expense.

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By blok
14th Mar 2012 07:54

.
Just because it has been added back for tax purposes in the company doesn't mean you can ignore the p11d issue.

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