Business Expenses

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Hi All

I am asking the following question for the avoidance of doubt on my part:

My limited company incurs a large amount of business entertainment costs in the course of normal trading, which are then reimbursed by a separate company that I provide consulting services for, along with my monthly rate. Assuming that I cannot claim tax relief on the business entertainment that I pay for, does this mean that I am actually incurring additional costs to the business every time I entertain. I.e. because I cannot claim tax relief on the outlay, but still have to count the reimbursement as business revenue, I am actually incurring an additional corporation tax cost to the business (on the reimbursement) compared to if I had not entertained.

Many thanks

Replies (15)

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By Wanderer
05th Jul 2018 09:36

rmiddleton88 wrote:
Assuming that I cannot claim tax relief on the business entertainment....

If we accept that assumption then the answer to your question is Yes.
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Replying to Wanderer:
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By rmiddleton88
05th Jul 2018 09:47

I am happy to be proved wrong with regards to not being bale to claim tax relief on business entertainment:

The entertainment is in the form of lunches and meals with potential clients

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RLI
By lionofludesch
05th Jul 2018 10:04

Well, it depends. Are you incurring these costs on behalf of your customer?

If you are recharging these costs, whether or not with a profit margin, I would say that you would be able to recover the VAT and have the balance of the costs allowed against profits.

You would, of course, charge VAT to your customer and itemise the entertaining element, as he would need to add back the cost to his own profit.

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Replying to lionofludesch:
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By rmiddleton88
05th Jul 2018 10:19

Many thanks

I am inuring the costs on behalf of my customer

Are there any pages on the HMRC website with examples where the process you describe has happened. Ie that I am able to offset the costs against profit whereas my customer has to add back these costs to his own profit

My customer is based in the British Virgin Isles - just in case that makes a difference

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Replying to rmiddleton88:
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By lionofludesch
05th Jul 2018 10:30

Are you charging him exactly the same costs, not a penny more nor a penny less than you pay ?

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By rmiddleton88
05th Jul 2018 10:34

I plan to charge him exactly the same cost. Is this what is known as a disbursement?

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By lionofludesch
05th Jul 2018 10:44

Yes.

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Replying to lionofludesch:
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By andy.partridge
05th Jul 2018 10:55

I disagree. That's a recharge of expenses at cost, a common occurrence.

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Red Leader
By Red Leader
05th Jul 2018 12:06

I was surprised by lion's answer.

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Replying to Red Leader:
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By lionofludesch
05th Jul 2018 13:45

Red Leader wrote:

I was surprised by lion's answer.

Well, that'll be because it's rubbish, won't it ?

I agree with Andy.

However, I don't agree with any implication that input tax is irrecoverable. In this case, the OP should be able to recover his input tax as he is recharging it to his customer - who cannot recover it. HMRC don't get two bites of the disallowance cherry.

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Replying to lionofludesch:
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By Matrix
05th Jul 2018 13:50

But it isn't entertaining for the end customer, it is payment for a third party service to a supplier.

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By lionofludesch
05th Jul 2018 13:52

That's not my interpretation of the situation but I'm happy for the OP to clarify.

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By andy.partridge
05th Jul 2018 12:23

To treat a payment as a disbursement all of the following must apply:

you paid the supplier on your customer’s behalf and acted as the agent of your customer
your customer received, used or had the benefit of the goods or services you paid for on their behalf
it was your customer’s responsibility to pay for the goods or services, not yours
you had permission from your customer to make the payment
your customer knew that the goods or services were from another supplier, not from you
you show the costs separately on your invoice
you pass on the exact amount of each cost to your customer when you invoice them
the goods and services you paid for are in addition to the cost of your own services
It’s usually only an advantage to treat a payment as a disbursement if the supplier didn’t charge VAT on it, or if your customer can’t reclaim the VAT.

https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-custome...

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By Matrix
05th Jul 2018 12:32

You were eating the meals not your end customer so I don't see how it is a disbursement. It is entertaining in your accounts.

If you choose to charge a higher amount to your end client then that is a commercial decision between you.

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By Jo Nokes
06th Jul 2018 00:10

Well, it's clearly not a disbursement, for the reasons others have specified, but since you incur the entertaining specifically on your client's behalf, provided you show it as a separate item on your fee invoice, I would say it is tax deductible in your tax computation, and disallowable in his

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