My client, who is sole director of limited company and works from home, travels into London to meet a customer for a business meeting. The meeting is carried out at a cafe and my client pays for lunch for both himself and the customer. The purpose of the meeting is to discuss business, rather than entertain the client.
I am aware that the cost of the lunch is NOT allowable for corporation tax as it is considered to be entertaining, but is my client's travel expense to/from the restaurant allowable, or is this also considered to be an entertaining expense? I believe it should be allowable given that my client would have to travel to meet his customer for the business meeting, regardless of whether it happened in a cafe or in the customer's office.
Apologies if this is obvious, but I would appreciate your thoughts.
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Thank you
Thanks John, that is what I had thought. Does anyone have a link to guidance offered by HMRC on this exact point? I am struggling to find any.
What would happen if the director paid for the meal personally, and only claimed the cost of their own food to the company? Would their own food costs be deductible under the subsistence rules (providing they meet the conditions for travel to a temporary workplace?)
I think yes
Providing the lunch took place in a location far enough away from his workplace, then his half of the cost is subsistence and claimable, just as the lunch costs of any other employee would be. The client's lunch costs are not claimable unless he or she is an overseas client in which case they are fully claimable despite being entertaining under an ECJ ruling from 2011 or so.
No
The Danfoss/AstraZeneca decision has got no application for direct tax purposes. It applies in respect of VAT only, and where there's more than basic provision, HMRC expect an output VAT adjustment for entertaining overseas customers where the input VAT is recoverable (see Notice 700/65).
Entertaining expenditure and costs incidental to it are not deductible see BIM45020. The director's own meal is incidental to the entertaining, but the travel is allowable see BIM45025.
Thanks - but is this actually an incidental expense?
Thank you Steve. I understand that if the company foots the bill for all, then the director's own meal is incidental to the entertaining, so would not be allowable.
However, my second query is a case where a director pays personally for lunch for himself and others, but only charges the company for his own meal. So the only cost incurred by the company is that of the director's own lunch. It is not a case of the company footing the whole bill, and trying to split out the director's cost and saying that is allowable under subsistence rules. Do you think it makes any difference to the director's lunch being allowable or would your conclusion still be the same, even where no meal costs for others appear in the accounts?
Same conclusion
The entertaining rules are mirrored in ITEPA 2003 with the exception that they are an allowable employment expense if the employer reimburses the expenditure and then adds it back in their own tax computation.
You need to start with the facts. Splitting it in this way to treat it as subsistence is just creating a fiction.
Your OP started with him travelling to London for a business meeting (over lunch). If he hadn't travelled to London for the business meeting he wouldn't have needed any subsistence. There was, as a matter of fact, only one expense on lunch.
How much was it? Is it worth putting the thin end of a wedge into your computations?
Incidentally, I missed out BIM45034 last time.
Many thanks
Thanks Steve for that clarification - all makes sense now.
It's a tiny amount - just a sandwich lunch at a cafe - but a client who has just set up a limited company, so important that I explain to her what is / is not allowable right from the start.