Entertainment costs - partnership

Entertainment costs - partnership

Didn't find your answer?

Partners of a business have booked a "blue sky" strategy day away.

This involves an overnight stay at a plush hotel, meeting facilities and they happen to be playing golf as well (oh... and the wives will be there as well).

They argue they can't have this meeting at the business premises because they have non stop interuption from staff and clients (which I know is true).

Tax deductable in the partnership?

Replies (8)

Please login or register to join the discussion.

avatar
By thisistibi
15th Sep 2011 11:41

Entertaining

I think that ordinarily paying for meeting facilities for a genuine business meeting should be allowable on basic principles.  The problem is that they have then tainted the business purpose by combining it with a golf day.  I think you could argue that the event comprises staff entertaining, but that would put you into a position where a BIK arose on the employees/partners.  You cannot classify it as training, I don't think.  So yes, my gut feel is that it's allowable staff entertaining but a BIK arises.

Thanks (1)
avatar
By blok
15th Sep 2011 12:09

.

There will be no staff at the hotel, only partners so dont think BIK should apply.

I think we are looking at a restriction (add back) to the cost based upon the private element of the overall cost.  Perhaps claim the room hire and accomodation, add back the food, drink and golf?

Thanks (0)
Northumberland flag
By MJShone
15th Sep 2011 12:13

I think you might be referring to the partners themselves?

To the extent that there are employees involved, I think thisistibi's answer is correct in that the cost is deductible in the partnership. The BIK might be able to be limited if you can get the invoice broken down - see below. 

However, you also have to consider whether the element that relates to the partners is allowable. It would help if the invoice can be broken down into the various elements eg golf, accommodation, food. You could then, arguably, limit the BIK on the employees to the golf. Unless the wives (you did say wives, not spouses!) eat like birds, you could allocate the meals according to headcount to work out BIK for employees/disallowable element for partners's wives. The accommodation might be a bit more tricky. Is the room rate per person or per room? If per person, the BIK/disallowable element for partners' wives should be clear. If per room, you're thrown onto wholly and exclusively for the partners - and I think the cost would be disallowable. For employees, I suspect there would be no BIK because the room would had to have been paid for anyway - the employee just shared it! (That would be my argument, I think, but the Reenue may disagree!)

Thanks (1)
avatar
By geoffmw1
15th Sep 2011 12:25

How can it be called entertaining if the only attendees are the partners?

Presumably none of the partners' own houses are large enough to accommodate everybody.

I would add back the golf green fees.

The other costs are apparently incidental to the business reqirement.

Thanks (1)
avatar
By blok
15th Sep 2011 14:16

.

Thanks,

I agree that this has nothing to do with entertaining. 

Just trying to gather some thoughts on whether the deductability of the meeting/get together costs of the partners would be allowed, at least in part.

As geoff has said, probably just add back certain elements and argue the other costs are incidental to the business purpose.

Thanks (0)
By flurrymc
15th Sep 2011 15:39

Watkis v Ashford Sparkes & Harward

 

Consider the case of Watkis v Ashford Sparkes & Harward [1985] 58TC468 and BIM 37925, which gives R&C’s view. 

 

Finally, Nourse J explained why the partners' costs at the annual conference are allowable; not to satisfy a need for accommodation but to allow discussion to continue. The cost of the food, drink and accommodation at the annual conference was different. The cost of the accommodation was not expenditure which met the needs of the taxpayers as human beings. They did not need it for that purpose because they all had their own homes where they could have spent the night. The reason why they needed it was so that they could continue their discussion informally between the formal sessions on the Saturday afternoon and the Sunday morning. The Commissioner was entitled, on the facts found, to conclude that the business purpose in incurring the cost of the accommodation was the exclusive purpose and that the private benefit to the taxpayers was purely incidental. This conclusion was not one with which Nourse J could interfere.

Thanks (1)
avatar
By blok
15th Sep 2011 16:19

.

thanks for the above link.  I can take some comfort and some warnings from this case.

Thanks (0)
Mark Lee headshot 2023
By Mark Lee
15th Sep 2011 19:07

Key points

1 - It's nothing to do with entertaining - as already acknowledged

2 - Is there a good argument that any or all of the costs are being incurred w&e for business purposes? Yes - based on what you've said. Hopefully there will be minutes or other output to evidence that the strategy day took place should HMRC later doubt the honesty of the partners' assertions.

3 - Are there any elements of the costs which evidently do not satisfy the w&e test - taking account of relevant case law (such as above case)? No deduction should be claimed for such expenses.

4 - Is there a risk that HMRC will challenge part or all of what's left and how does the client feel about this? (note the ref to BIM above)

5 - Depending on answers to both parts of Q4 - should any disclosure be made in the white space of the partnership return to limit the prospect of a discovery assessment in the future - perhaps after the costs of a subsequent strategy day are successfully challenged by HMRC.

Mark

Thanks (1)