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Restaurant expenses

I have completely confused myself on what expenses are tax deductable when a director has restaurant expenses.

Here are the 3 scenarios - I have for a director with a limited company;

1) The director travels away a lot abroad so he stays in hotels and has a meal there - I think this is the most straight-forward and I can class this as travel expenses?

2) The director entertains potential clients - is this classed as entertaining or is it tax deductable as he is trying to find new business for the company?

3) The director goes out with a colleague while abroad on work and pays the full bill - is this classed as entertaining or tax deductable as he is away?

I would really appreciate a bit of guidance as I have now completely confused myself!

Thanks!

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03rd Mar 2012 17:06

My view

I am in the middle af a battle with husband and wife directors who insist restaurant meals down their local pub are all 100% business!

To answer your points in my view:

1.  Business T&S so long as reasonable.

2.  Entertaining and disallowed unless overseas client in which case allowable.  Director's meal may be OK as subsistence under point 1 but not if the meal is a locallly based one.

3.  T&S in my view so long as "reasonable".

Reasonable - NOT the £800 per person meal at the Savoy by directors of a former company who all knew they were leaving so blew the budget in the wine cellar!

 

 

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04th Mar 2012 19:51

Are you sure ........

Are you sure that Corporation Tax relief is available on entertaining overseas clients?

 

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03rd Mar 2012 19:24

My answers
Tax deductible if eating alone in the hotel where he is staying or in a local restaurant.Not tax deductible in any circumstances (and that includes overseas clients).Tax deductible if the colleague is a fellow employee of the company; not tax deductible if the colleague is self-employed or employed by another company.

The tax deduction is only available on meals for existing employees - anyone else is either not a business expense or entertainment, which is not deductible.  As Mr Mischief says, a reasonable amount of a reasonable wine is acceptable - excessive amounts of expensive wines could be challenged by HMRC as not wholly or necessarily incurred for business purposes.

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03rd Mar 2012 21:22

on overseas clients

What about the Astra Zeneca ECJ 2010 ruling?

http://www.hmrc.gov.uk/briefs/vat/brief4410.htm

 

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04th Mar 2012 11:16

Customs Brief 44/10

As you might expect from the title, Customs Brief 44/10 relates to VAT and the recovery of input tax, not to deductibility for corporation tax purposes.

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04th Mar 2012 13:36

True, but
"VAT : Change in the tax treatment of business entertainment of overseas customers"

Here my argument is that in the past the income and corporation tax treatment of entertainment has always followed the VAT treatment - otherwise what is already an unbeleivably complex area with a very long set of rules would just become silly.

So unless explicity stated that this does not apply to those taxes, in my view it does.  Helpfully the title of the document - posted above - refers to "tax treatment".

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04th Mar 2012 15:19

Thanks for your help Mr Mischief & Euan, these restaurant expenses are a bit of a minefield.

I have a similar issue with also a lot of meals down the pub with the director & his company secretary. Would you put the expenses though the accounts as entertaining or just not put them through at all?

Some were over Christmas and New Year - clearly not anything to do with business!

 

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04th Mar 2012 19:56

Note the case I cited was November 2010!

Please note the case I cited was from the European Court of Justice in 2010, so posts from anyone dated before this date are not valid any more.

What is clear is that input tax on entertaining overseas clients is fully recoverable for VAT, and you can do a 4-year back claim in respect of such costs if they've not been claimed up to now.

This thread highlights the almost farcical complexity of the entertainment rules.  The precedent ever since I qualified in 91 is that the rules for corporation tax and input tax follow the VAT rules on entertaining.  So I am following this in income tax submissions and corporation tax submissions right now.  Within IXBRLi submissions I have separate line items for "Staff entertaining", "UK customer and supplier entertaining" and "Overseas customer entertaining" so at least for limited company accounts HMRC can't complain about lack of disclosure.

Strictly the VAT notice could be interpreted either way.  But if that were the case, we'd then be in a situation where an already hugely complex area - business entertaining - gets a new layer of complexity because in some aspects things are claimable for VAT but not for other taxes.

 

 

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04th Mar 2012 22:09

Staff enteraining - more complexity!

You would not expect HMRC to keep the definition of "staff" simple and they don't disappoint:

"3.2 Can I recover the VAT incurred on entertaining directors or partners of the business?

If the entertainment is provided only for directors or partners of a business the VAT incurred is not input tax. This is because the goods or services are not used for a business purpose. The VAT cannot, therefore, be recovered.

But where directors and partners of the business attend staff parties together with other employees, we accept that the tax is input tax and is not blocked from recovery."

However, where the directors incur "enteratinment" costs for the AGM this is allowable as AGM expenses.  I have a husband and wife limited company client who make a point of holding their AGM in the Sheraton Hotel in Edinburgh!

 

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09th Mar 2012 11:19

Monday to Thursday Rule

2) The director entertains potential clients - is this classed as entertaining or is it tax deductable as he is trying to find new business for the company?

Several factors can determine whether expenses are claimable. 

HMRC have previously specified that if a meeting is between the days of Monday and Thursday and equals a porportionate value per meal then it can be claimed.

If he is ever investigated it is advised that a log is kept explaining each meeting with details of the potential clients met.

Obviously the phase self-assessment means it can be judged using common sense. If you assess how benificial each meeting is and you feel comfortable backing up the relevance of each meeting there is no reason why it cannot be claimed.

I hope this helps.

Many Thanks

Mr B J Burns

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