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Business or pleasure - opinions please

Business or pleasure - opinions please

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Family run haulage business with 20 employees including the two adult children of the husband & wife directors.

The four family members are the company's only admin staff.  All the other employees are drivers and mechanics. The children still live at home with their parents.

The four family members went out for an expensive meal at a top hotel and are claiming this was solely for the purpose of holding a strategic management meeting away from the office premises to ensure privacy in discussing the future management of the business. The company has had a very sucessful year and the parents chose the venue to reflect the success of the past year and as a suitable venue at which to announce significant financial bonuses for the children. 

Can the cost of this meal be claimed as a tax deductible business expense and the VAT reclaimed ? 

 

 

Replies (29)

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By chicken farmer
11th Sep 2019 10:47

From the way you have described it there is at least a duality of purpose therefore its not 'wholly and exclusively' incurred so not deductible for corporation tax. I leave others to comment on VAT

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By Tax Dragon
11th Sep 2019 11:02

For balance, I will differ. I'm looking at s1299 CTA 2009 and thinking this acts to prevent a disallowance.

But there's a taxable BIK.

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By The Dullard
11th Sep 2019 11:11

It's deductible with a BIK, but you can't recover the VAT, simply because different taxes work differently.

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Replying to The Dullard:
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By Tax Dragon
11th Sep 2019 11:17

You have a way with words :-)

Replace ", simply because" with ";" and we agree completely.

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By ireallyshouldknowthisbut
11th Sep 2019 12:41

I would suggest your client knows they are taking the pee.

You don't end up running a haulage business of that size by being a shrinking violet.

Stand up to them, they will respect you for it, and keep pushing/bullying you if you don't.

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Replying to ireallyshouldknowthisbut:
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By The Dullard
11th Sep 2019 13:32

What is taking the pee about having a benefit in kind?

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Replying to The Dullard:
By ireallyshouldknowthisbut
11th Sep 2019 13:50

Come off it, its not a BIK question.

its a "can I have this for free on the company" question.

To which the answer is "no, it would be BIK, so rather pointless claiming"

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Replying to ireallyshouldknowthisbut:
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By Tax Dragon
11th Sep 2019 14:16

Rather pointless claiming? Too late, the company has already paid - though the mechanism whereby that happened is to be clarified.

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By Tax Dragon
11th Sep 2019 13:48

I've reread the question.

It's implicit (though not stated) that the company has borne the cost. How did that circumstance come about?

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Replying to Tax Dragon:
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By L Haldane
11th Sep 2019 14:23

For clarity, the company in question is a client of mine and the meal was paid for by the company.

I have advised my client that no VAT can be claimed on the cost of the meal and I have advised them to charge the whole cost to the directors' loan account as a personal expense, which is obviously not what they wanted to hear.

In posting the question I am simply looking for a second opinion to confirm that I have advised my client correctly.

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Replying to L Haldane:
Hallerud at Easter
By DJKL
11th Sep 2019 14:37

However you could mention that had they invited their friendly accountant to the lavish very necessary meeting, ideally out of town, then ........

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Replying to DJKL:
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By Tax Dragon
11th Sep 2019 16:15

then.... if s/he'd had the most expensive meal, they could have argued that s1299 did not apply? Why would they do that?!

Anyway it turns out this was all just fantasy (caught in a landslide, no escape from reality, open your eyes, look up to the skies and see....) ...the company simply lent the funds to pay for the meal, it didn't (as we first thought) pay for the meal itself.

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By The Dullard
11th Sep 2019 16:05

I don't know why you would DCA it. It sounds like a perfectly proper expense of the business. It just gives rise to BIKs for the four individuals. Divided by 4 it may be a trivial benefit though, dependent on your particular view of what an expensive meal is.

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Replying to The Dullard:
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By Tax Dragon
11th Sep 2019 16:21

The Dullard wrote:

...dependent on your particular view of what an expensive meal is.

And your interpretation of the trivial benefit rules. (And indeed whose DLA we are talking about... just the two parents?)

I agree that folk in here seem to reach for DCA/DLA too readily. I think that's part of the landslide effect.

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Replying to The Dullard:
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By L Haldane
11th Sep 2019 16:26

ER nic on BIK @ 13.8% plus personal tax @ 21% (Scotland) will cost the family more than the Corp Tax saving @ 19% - hence better to charge to directors loan a/c and declare as a dividend and pay 7.5 % dividend tax than to expense as BIK at net cost of 15.8%.

Cost in excess of £50 each so unable to go down trivial benefit route.

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By Matrix
11th Sep 2019 18:08

Staff entertaining so allowable as a tax deduction and they can reclaim the VAT. BIK per above or set up a PAYE SA for company to bear the cost.

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Replying to Matrix:
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By The Dullard
11th Sep 2019 18:22

You can't reclaim the VAT because it's the proprietors and their family. See https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit43600 Make sure you get as far as the paragraph about directors/proprietors.

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Replying to The Dullard:
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By Matrix
11th Sep 2019 18:23

Two Directors and two employees though.

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Replying to Matrix:
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By Tax Dragon
12th Sep 2019 10:03

In an argument. It's questionable whether it would convince a tribunal, mind, but it's an argument.

I've decided I now agree completely with chicken farmer vis-à-vis the VAT.

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Replying to Matrix:
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By The Dullard
12th Sep 2019 10:13

But the two "employees" are member's of the proprietor directors' immediate family.

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Replying to The Dullard:
Psycho
By Wilson Philips
12th Sep 2019 10:41

I'm surprised that you are so ready to accept HMRC's guidance. In any event, though, the paragraph cited makes no mention of members of directors' family. Secondly, it does not block input VAT on meals etc on business trips. Whether this could be considered a business 'trip' I'm not sure but it is certainly debatable.

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Replying to Wilson Philips:
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By The Dullard
12th Sep 2019 11:02

In practice HMRC will accept their own guidance, and I know from experience that this is how they will seek to apply it in this sort of situation. And it would have to be a really expensive meal for it to be worthwhile arguing the toss; I mean debating the issue.

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Replying to The Dullard:
Psycho
By Wilson Philips
12th Sep 2019 11:09

"In practice HMRC will accept their own guidance". Unless, as has been proven to be the case, it doesn't suit their argument.

But I agree that one needs to consider the commerciality of arguing the matter.

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By Tim Vane
11th Sep 2019 18:12

Just allow it all. Sod the BIK. Life's too short.

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Replying to Tim Vane:
By JCresswellTax
13th Sep 2019 10:00

Too true.

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By paul.benny
12th Sep 2019 14:45

What exactly is leading people to disallow this? Have we forgotten that the purported purpose was strategy discussion?

Is it the lavish nature of the occasion?
Is it the fact that it's the attendees are all related (notwithstanding that they are the senior staff of the company)?

How would you treat the costs of an offsite meeting at a plush venue for the directors of Megacorp plc? Or the costs of a sales conference for the sales team? Or for that matter an annual professional event?

Assuming that the cost per head was less than £150, would it make a difference if there was another (cheaper) event for other staff - in effect making the events into the Christmas party?

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Replying to paul.benny:
By Glenn Martin
12th Sep 2019 14:55

I saw recently on social media that one of the app companies took all 50 of its staff to Bali for a week for some sort of team brainstorming / mastermind session or whatever these software types call it.

I wonder how they square that away with HMRC (and their investors).

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Replying to Glennzy:
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By The Dullard
12th Sep 2019 15:27

PSA with HMRC, unless they manage to push it through the work-related training exemption, which isn't outside the realms of possibility.

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By Tax Dragon
12th Sep 2019 15:38

Entry level, free commentary is provided here: https://www.gov.uk/expenses-benefits-social-functions-parties/whats-exempt (fortunately for me I didn't see a mention of VAT so I don't feel like I'm in breach of undertaking in sharing this).

Some folk don't like the publisher, but you'd be foolhardy to ignore the views expressed completely. And the points made are easy enough to look up in legislation.

The same publisher provides much more detailed (and generally better) commentary, also for free, for those prepared to look a bit harder.

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