Share this content
20

Business meal as meeting not entertainment - how is it treated for VAT and tax

Business meal as meeting not entertainment -...

Didn't find your answer?

In the process of developing a new product a director has had meetings with a number of people from a range of companies to find out about their business processes.  This is for market research to ensure that the product we are developing meet the needs of the market.

For some of these meetings the logistics mean he takes the person for a modest meal as the best place to meet (cheaper than hiring a room).  For some of these trips, he is away from home and his part of the meal is subsistence and hence deductible.  But what about the other person's?  It is not what I would call entertaining as we are not touting for their business, it is just a means of finding a suitable and convenient place to meet.  It is entirely for business reasons.

How should it be treated in the accounts for VAT and tax and are there any personal tax implications.

Thank you in advance.

Replies (20)

Please login or register to join the discussion.

avatar
By WhichTyler
10th Feb 2011 14:27

Like the song says...

... That's Entertainment!

If you provide entertainment (inc. food & drink) to someone who is not an employee, it is considered entertainment, no matter what the motivation or opportunity cost. See VAT notice 700/65. You may not call it entertainment, but HMRC do (I'd rather stick pins in my eyes than go on a 'golf day', but that's entertainment too, apparently).

 

 

Thanks (0)
avatar
By Cirius di Lemma
10th Feb 2011 14:43

Yes...

... I think I'd like to see someone sticking pins in their eyes too!

"Entertainment includes the provision of hospitality of any kind".  Get the product director to take his informants to the restaurant and either:

let them just watch him eat his lunch, orrecharge them for their lunches.

Otherwise, you just need to accept that VAT/tax is an additional cost here.

Thanks (0)
avatar
By thisistibi
10th Feb 2011 14:47

Hospitality of any kind

Business entertaining = hospitality of any kind

So, you're stuffed.

But if it makes you feel any better, lots of companies "research" with their clients all the time for "entirely business reasons" and they aren't allowed a tax deduction either :)

Thanks (0)
Adrian Pearson
By Adrian Pearson
10th Feb 2011 15:14

Definition of hospitality

In the dictionary I looked at, hospitality is "The friendly and generous reception and entertainment of guests, visitors, or strangers". Doesn't seem to fit the arguments here?

Thanks (0)
avatar
By Cirius di Lemma
10th Feb 2011 15:25

Adrian...

... perhaps you'd be prepared to donate your dictionary to HMRC.  You're right that the one they use gives a definition that's less helpful to the OP.  http://www.hmrc.gov.uk/manuals/bimmanual/BIM45010.htm

Thanks (0)
avatar
By taxhound
11th Feb 2011 06:51

interesting

I know of a firm which has reached an individual agreement with HMRC that a certain % of entertaining should be allowed because it is "really marketing".

 

Thanks (0)
avatar
By thisistibi
11th Feb 2011 08:25

@Taxhound

Are you sure that you don't mean, part of was "really advertising"?  As I have seen that before and it's quite legit.  I had a client which entertained clients at an award ceremony, and also sponsored one of the awards, and got banners put up round the venue.  It was hard work to apportion but it wasn't all entertaining.

Thanks (0)
avatar
By WhichTyler
11th Feb 2011 08:26

@Taxhound

Call me cynical, but do you think he bought the  inspector lunch?

Thanks (0)
avatar
By taxhound
11th Feb 2011 09:31

Highly likely!

I know we should endeavour to get the best for our clients, but I think a two tier system where one person gets preferential treatment overwriding what is written in statute is wrong.  If it should be allowed, then it should be allowed for all.

Thanks (0)
avatar
By Cirius di Lemma
11th Feb 2011 11:40

I agree...

... with thistibi's point and taxhounds sentiments.

The only basis for not treating expenditure as business entertaining is when it's possible to genuinely apportion expenditure between that that is business entertaining and that that isn't, as in the kind of example thistibi refers to.

I too have seen HMRC accept that were an organisation throws a function for marketing purposes, the costs of throwing the function (venue, pa system, etc) are allowable with the exception of the food and drink provided (I think in that situation the "sound system" was used both to provide background music and to provide pa facilities for speakers, etc, and those costs were apportioned).

Expenditure that wholly fits into the business entertaining definition should not though be apportioned, even though it might be wholly and exclusively for business purposes.

There is though, one let out that could (possibly) be at the source of the issue taxhound refers to.  I think thistibi alluded to it too.  Where a business provides things that are business entertaining, but which are of a kind that are usually provided in the course of its trade, and it does so in order to advertise to the public generally, then it is allowable.  This would apply, for example, if a restaurant had an "opening night" for press, etc.

Thanks (0)
avatar
By taxhound
11th Feb 2011 13:03

Pure entertaining

The company I refer to is incurring what I would consider to be pure entertaining - meals at expensive restaurants, golf days, shooting etc etc, and lots of it too.  And yet HMRC have agreed to allow a proportion.  Definitely not on a par with a restaurant holding a function or similar.  I believe it was allowed because they said it was more like marketing rather than entertaining (even though it is nothing to do with their line of business), but that is not what I read in the legislation.

Thanks (0)
avatar
By thisistibi
11th Feb 2011 13:57

@Taxhound

To expand on my earlier point which was perhaps too subtle...

"Marketing" is a generic term.  It's like saying "it's not entertaining, it's an administrative expense".

Marketing could be:

client entertaining,advertising, client gifts / product samples, cold callingmarket researchany other number of things!

Therefore, you would need to be more specific about what type of marketing it is in order to support a tax deduction.

Thanks (0)
avatar
By WhichTyler
11th Feb 2011 14:49

Not just marketing

I suspect that the blanket prohibition is there to bypass this kind of semantic discussion.

The motive for the entertaining/hospitality is irrelevant (for instance you could entertain key suppliers in order to secure better terms, or potential shareholders in order to get investment). Its all disallowed, no matter where you code it to...

Thanks (0)
avatar
By taxhound
11th Feb 2011 15:46

I quite agree with the two above posts

But somehow this company has got HMRC to agree that a % of entertaining is allowable.  And by entertaining, I mean taking people out to restaurants, golf days, shooting days etc - exactly what I would always disallow in my clients tax comps.  There is nothing different to all of the other companies out there, except that they say the HAVE to do it to win clients so HMRC have agreed to allow a proportion.  ("Don't we all" shouts everyone else).

Back to my original point - why are HMRC allowing some "customers" a proportion of entertaining, which is specifically disallowed in the legislation?  One rule for most and another rule for a privileged few.   Good to see clarity in taxation.

Thanks (0)
avatar
By WhichTyler
11th Feb 2011 16:44

@Taxhound

If it is as you describe, it's wrong. And it probably won't last.

Could it be possible that whoever told you this is either bigging themselves up, or has just done it, and survived an inspection, and is passing this off as 'HMRC approval'??

OTOH If you've got a copy of HMRC's letter approving the allowance, please post it for the good of all!

Have a good weekend

Thanks (0)
avatar
By taxhound
11th Feb 2011 18:01

@WhichTyler

No, they wrote a grovelly letter to hmrc and got clearance to allow a proportion.  I can't send you a copy(!) but I know that is how it is.  There was no inspection or enquiry involved.

Thanks (0)
avatar
By HWB
15th Feb 2011 14:16

HWB's Tax Manager Alan Rolfe answers ...

Briefly, the cost of business meals that facilitate work (such as an on-site working meeting where lunch is provided) will be an allowable deduction for tax purposes, while pure entertainment (such as taking customers to the races) will not be allowable. Staff entertainment is generally allowable (e.g. Christmas party), but could give rise to personal tax charges for the staff if more than £150 per head.

For VAT the cost of entertaining overseas customers (but not prospects, suppliers, etc.) qualifies for Input Tax recovery, but other entertainment does not, apart from pure staff entertainment (e.g. Christmas party). VAT can be recovered on subsistence expenses, such as hotel accommodation for staff working away, so the distinction between entertainment and subsistence is very important, but not always totally clear cut.

-- HWB - A fresh approach to business

Thanks (0)
Replying to David Heaton:
By Financial Health
18th May 2015 16:39

Sub-contractor meals

Your post was intriguing. I'm trying to establish if the cost of buying meals for sub-contractors on a customers site is allowable (both for CT and VAT). Instinct says they are suppliers so no but I wondered if your experience re business meals that facilitate work might allow it?

thanks for your help

Thanks (0)
avatar
By thisistibi
15th Feb 2011 14:41

@HWB

Your post seems to be very high on advertising and very low on useful content.

Perhaps you could provide (any) support for your contention that providing a working lunch to clients is an allowable deduction for tax purposes?

Thanks (0)
avatar
By Gone Sailing
25th Feb 2016 11:13

A bit late ...

but this might help:

http://www.hmrc.gov.uk/manuals/bimmanual/bim45045.htm

Thanks (0)
Share this content