The latest issue of Private Eye (page 29) has an article stating that HMRC staff who are required to entertain clients do not receive P11d's showing the entertainment as a benefit.
HMRC maintain that the entertainment is "wholly, exclusively and necessarily...".
I would have thought that this is worth keeping a copy of, to produce and show to any over-zealous Inspector in the future.
Mr Phillips
Replies (14)
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Obligation?
Imagine the scenario where 2 members of a large sales team were to entertain a client. They decide amongst themselves who will attend. Would you say that they were not covered by s336 because there was no obligation on them to attend - anyone could have attended therefore no-one should get a deduction.
Whichever employee attends will be obliged to incur the costs.
The same could be said about any expense. For example, an employee is not obliged to take a taxi, but a deduction will be due even if the distance could be walked or if a bus was available. Once it was decided that a taxi would be taken, the employee was obliged to incur the cost.
Taking your argument to a conclusion, no expense would be allowable because, in reality, no-one is obliged to do anything.
Shurely nothing new there, Haggis?
It is widely held by those on both sides of the fence that any relief given under S.336 is at the discretion of HMRC, rights on paper notwithstanding.
Not so sure I follow the logic
The obligation to do something will surely depend on the nature of the job, your employment contract and your employer. We have not, I think seen any cases before the courts where a boss obliges an employee not to do something...
I would say that if employees decide between themselves who is attending what, that does not change their duties or the obligation to perform those duties.
But the devil in the detail...
One would expect to find the directors of any normal trading company taxed on the cash equivalent of the benefit, unless the entertaining was covered by any specific exemptions.
With regard to the Private Eye story, HMRC is not a trading company and so the rules work in a slightly different way, even though the outcome is the same. It told its directors that they were not obliged to attend the diner. No obligation means then that it does not meet the test in s 336 ITEPA, which of course says:
1)The general rule is that a deduction from earnings is allowed for an amount if -
a) the employee is obliged to incur and pay it as holder of the employment, and
b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. My italics
So, an important thing here is that the tax treatment for HMRC staff could be slightly different than normal trading businesses, even though they still managed to get it wrong. There is a good little chart in EIM32566 which takes you through this in a pretty pain free fashion.
http://www.hmrc.gov.uk/manuals/eimanual/EIM32615.htm is the embarrassing bit for HMRC it says:
Sometimes expenditure does not relate to a genuine working occasion. It may simply cover entertainment of the employee's colleagues or friends where there was no business obligation to do so. In that situation no deduction should be given.
HMRC Entertaining
Will include overseas tax officials visiting the UK.
The UK has one of the world's largest tax treaty networks, so visits such as this are more frequent than you would imagine.
HMRC also sells training services to oversea customers, in particular the Commonwealth countries who not surprisingly have elements of the UK tax system in theirs.
Lastly there are foreign delegations visiting occasionally just to exchange ideas. A few years ago it was reported that there was a group from PR China who had come to learn about compliance methods. As this was shortly after the Tiananmen Square incident, this seemed rather ironic.
Independent checking
There is no reason why one man small companies cannot get dispensations as long as they set up the proper independent controls e.g. Company could undertake that their accountants will undertake and integrity check of all the "dispensation" expenditure
regards and hope it helps
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Checking
All companies can apply for a dispensation. It is the extent and integrity of the internal controls that will determine if a dispensation is given.
Companies will not want to incur expenses if they can be avoided. It is in their interest to check employees expense claims. There is not the same degree of independent checking in one-man companies.
Entertaining in HMRC is likely to be in the corporate side - they have suppliers and conferences with external bosies and associations the same the as any other organisation. There isn't likely to be any entertaining at the sharp end of their work.
EL
You must use a different Revenue office to us. I've found with the new style forms (been in a couple of years I think) that they don't really distinguish much between one man ltd co's and large organisations. Consequently, the only reasons that I've not had dispensations allowed in the last two years is due to insufficient PAYE history.
How can they give themselves a dispensation?
i am concerned at the integrity of their giving themselves a dispensation? They aren't keen to give dispensations to one man limited companies, so it seems like a total contradiction!
HMRC "Clients"
Probably similar to (or even the same as) the fictitious "Revenue Customer"!!!
I'm just amused by the notion
of HMRC staft "entertaining clients" in the performance of their duties.
hang on a mo....
I assume that HMRC has a dispensation and that is the reason the employees do not have entertaining on their P11Ds, not because it is
"wholly, exclusively and necessarily...".
But if it is "wholly, exclusively and necessarily...". why isn't it an allowable deduction?
One rule for them and another for us
Just like with MPs who can claim tax free expenses without producing receipts.
And while I'm at it, why should taxpayers pay the food bills of MPs? Whether they are in London or back at their constituamcy they can only eat one dinner. Well, perhaps John Prescott might want two.