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Coffee expenses treated as "rent"

Coffee expenses treated as "rent": I would normally disallow this but client will need convincing

Didn't find your answer?

OK - I should know the answer to this. I'm really just looking for a pointer to some information...

I have a new client (sole director/shareholder company) that works from a shared office. They have client meetings in coffee shops (you know where this is going)...They purchase a lot of Starbucks and Costa vouchers and are claiming that these are genuine business expenses as the purpose of them is to have a meeting space and the cost of the coffee is really just the rent of the space. The amount we are talking is around £80 per month which to me sounds excessive given they are a 1 person company!

My argument to them will be that any money paid in this respect would be viewed by HMRC as either

  1. Entertaining clients or suppliers - disallowable
  2. Possibly subsistence for them
  3. Likely staff entertaining or some other benefit in kind
  4. Possibly at a push trivial benefit, although given it is for work purposes, potentially not

Normally I would disallow this however this is quite an "assertive" client and I am expecting to need to provide chapter and verse, to combat the old "well I've always done it this way and my old accountant never had any issue with it" line.

So my question is - does anyone know where I can reference either legislation, or HMRC guidance on this so I can provide a robust enough response to them when I am challenged.

Alternatively, if I am wrong on this please also let me know 

Thanks in advance

 

Replies (34)

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Psycho
By Wilson Philips
15th Apr 2020 12:46

You shouldn't need to point to legislation etc - because I'd bet you an enormous sum of money that you will find nothing in either the legislation or HMRC guidance which states that paying for coffee is not a payment of rent. Because it isn't, and to suggest that it is is preposterous. If he complains that the previous accountant said this treatment was OK tell him that the previous accountant was an idiot and that he has done the right thing in changing accountants.

The treatment of the expense will then depend on who he is buying the coffee for.

Thanks (2)
RLI
By lionofludesch
15th Apr 2020 13:03

In my experience, HMRC have never quibbled about a couple of coffees, without food, at a meeting, even though it's technically entertaining. It's a common courtesy. But - Jeez - I've never claimed £80 a month. Probably not even £80 a year.

As you're, understandably, toey about it, suggest to the client that you might seek HMRC's view on the matter. See how confident he really is.

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Replying to lionofludesch:
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By Carolynne
15th Apr 2020 13:16

I Agree.

I would simply suggest to the client, that in light of you disagreeing with their explanation, if they wanted to claim it, you will have to write to HMRC to ask them to confirm it can be claimed, before submitting their returns. If they are arrogant enough to want to continue to pursue it, write the letter, you know it will be disallowed.

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Replying to Carolynne:
RLI
By lionofludesch
15th Apr 2020 13:42

Carolynne wrote:

I Agree.

I would simply suggest to the client, that in light of you disagreeing with their explanation, if they wanted to claim it, you will have to write to HMRC to ask them to confirm it can be claimed, before submitting their returns. If they are arrogant enough to want to continue to pursue it, write the letter, you know it will be disallowed.

Ach - I'd still try to put a good case on the client's behalf.

I wouldn't be saying "the director wants to claim this but I don't think it's allowable." I'd be more along the lines of "this is a trivial, common courtesy which wouldn't be questioned if it were provided on my client's own premises."

On the other hand, I wouldn't be trying to reclassify it as rent. That's a crazy argument.

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Replying to lionofludesch:
By Paul D Utherone
15th Apr 2020 13:42

£80 / month in Costa / Starbucks / pretty much any coffee shop probably only equates to max 2 cups / working day. Quite cheap rent for the jobbing writer looking for 'free' WIFI :)

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Replying to Paul D Utherone:
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By Kylo Ren
15th Apr 2020 14:31

I agree that they shouldn't change what they do. It is cheap by comparison. I don't however, believe that they should claim tax relief on it. It works out to being around 320 coffees in the year, more than one per working day. I can't see that this doesn't have an element of client entertaining, and more to the point I can't see that HMRC wouldn't see it that way either.
To me it looks like a combination of business meetings and the director's personal coffee fund.
Maybe an allocation of a proportion to subsistence would be possible.

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Replying to Kylo Ren:
RLI
By lionofludesch
15th Apr 2020 18:19

Kylo Ren wrote:
. I can't see that this doesn't have an element of client entertaining ......

Never had a client visit you and offered him a pot of tea or a coffee ?

Would you add that back in your accounts ?

Be honest.

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Replying to Paul D Utherone:
RLI
By lionofludesch
15th Apr 2020 18:12

Paul D Utherone wrote:

£80 / month in Costa / Starbucks / pretty much any coffee shop probably only equates to max 2 cups / working day. Quite cheap rent for the jobbing writer looking for 'free' WIFI :)

If he's on his own, it's not entertaining.

The original query was about meetings. I agree your two cups a working day, so one meeting per day.

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By SteveHa
15th Apr 2020 15:25

Whilst I'm not supporting (in any way) the interpretation as "rent", and whilst I fully agree with other respondents, are HMRC really going to argue the toss over a £960 PA expense (or £192 BR, £384 HR) tax?

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By paul.benny
15th Apr 2020 16:03

I'm mostly with the client on this. Trying to call this rent is a bit too much of a stretch - but it is a modern way of working to sit in a coffee shop and to meet clients there.

If he were to hire a meeting room by the hour, we'd have no trouble treating the cost as wholly allowable.

Ziferblat have a handful of locations in Manchester where "guests are micro-tenants of the space provided, with tea and coffee provided and paid for by the length of occupancy". They charge 8p/minute per person, with coffee and snacks free.

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By Kylo Ren
15th Apr 2020 16:20

Potentially the other way I could deal with it is to say that I personally disagree with the interpretation, however I can see their point and that it is not 100% clear cut. State that HMRC may take a different view and in the event that they do that then the client need to pay the tax/pentalties/interest/surcharges etc that are raised as a result, plus any additional fees of mine that are incurred as a result.
Would that be unreasonable/unethical?

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Replying to Kylo Ren:
By Paul D Utherone
15th Apr 2020 17:23

Set it out for the client. It is probably a justifiable expense, but maybe you need to agree a better description than "rent", and for them to be aware that HMRC might have an alternate view as to allowability as there could be a view that this is akin to entertaining.

Thanks (1)
RLI
By lionofludesch
15th Apr 2020 18:14

I definitely wouldn't call it rent.

It looks too much like hiding it.

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Replying to lionofludesch:
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By Tax Dragon
15th Apr 2020 23:11

lionofludesch wrote:

I definitely wouldn't call it rent.

Not even the difference between the takeaway price and the drink in one? Oh, wait....

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By Calculatorboy
16th Apr 2020 00:27

Why not classify some of the vouchers up as trivial benefits ..

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Replying to Calculatorboy:
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By Tax Dragon
16th Apr 2020 09:33

a) Why waste the 'allowance'?
b) Because that's for employees; this is money spent on (entertaining?) clients and suppliers.

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By ArianBloodwood
17th Apr 2020 10:04

I'm with the client too, on two bases:
a) As other posters say, this is an increasingly common work practice.
b) HMRC is always urging "the facts in the case". The fact is the payment enables the client to use the space.

I agree it's incorrect to call it rent. I call it Service Charge (i.e. a premises cost), subsistence (if longer than 4 hours), or staff welfare (if there are staff, e.g. an employed Director).

Thanks (1)
7om
By Tom 7000
17th Apr 2020 10:05

I asked a paye inspector about this one day in a tower block in London in a clients premises.

They said. Yeah you are meant to add it back technically, but we never bother....

So as much use as a chocolate teapot.

So what do you do?
a. Claim half of it as part of a subsistence journey, as you are talking to a client
b. The other half is entertaining clients.
write clients name on back of receipts.

Thats what I would do put it in accounts half as entertaining half as subsistence.

Probably going to jail now...

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Replying to Tom 7000:
RLI
By lionofludesch
17th Apr 2020 10:14

Tom 7000 wrote:

I asked a paye inspector about this one day in a tower block in London in a clients premises.

They said. Yeah you are meant to add it back technically, but we never bother....

So as much use as a chocolate teapot.

Au contraire.

I'd be happy with that.

It's not a bad thing to leave them something to find. They go home with a warm feeling of a job well done.

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Replying to lionofludesch:
7om
By Tom 7000
17th Apr 2020 10:27

Is that why you always forget to add vat scale charges in.....you little minx :)

Now go and wash your paws....

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Replying to Tom 7000:
Red Leader
By Red Leader
17th Apr 2020 11:17

Yes, I agree, it is sometimes necessary to take a broad brush approach to analysing meals, coffees, etc between subsistence and entertaining.

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By Casterbridge Hardy LLP
17th Apr 2020 10:33

Write it off to either public relations or conference expenses and take an indemnity from your greedy client.

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By Casterbridge Hardy LLP
17th Apr 2020 10:33

Write it off to either public relations or conference expenses and take an indemnity from your greedy client.

Thanks (0)
Replying to Casterbridge Hardy LLP:
7om
By Tom 7000
17th Apr 2020 10:46

Yes indeed,

following your instructions we have.... it may be that HMRC will.... should they do so then....

probably covers it

I would have that in too I think

Although, when a tax inspector says later... if you thought this was wrong
a. why didnt you stop him
b. did you make a money laundering report

You have to come back with... it was my understanding what we did was 100% correct and nothing to report... because any other answer is really not good enough. Then its just an interpretation of the rules and not a deliberate act

I have actually been asked those questions btw.
The answer at the time was he told us he had incurred these expenses and we told him to keep receipts and he signed a letter of rep...

nice use of the get out of jail card......

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All Paul Accountants in Leeds
By paulinleeds
17th Apr 2020 11:37

Agreed with everyone else. Strictly food and drink to a customer is entertaining.

It's not rent. It's drinks. It may be cheaper to buy a coffee than rent the chair in the coffee shop but that does not change the nature of what you have actually bought.

It was cheaper for a client of mine to install a new suspended ceiling than to re-plaster and paint the office ceiling. It was not a repair. It was integral fittings.

HMRC are okay with 'light refreshments' eg tea, coffee and biscuit. They would not argue about an incidental coffee at a client meeting

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By Kylo Ren
17th Apr 2020 15:31

What about the Clinton defence - They bought it but didn't inhale? The coffee just sat there. There was no personal benefit?

Its pushing it a bit isn't it?

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By Tax Dragon
17th Apr 2020 16:46

Anyone remember Caillebotte v Quinn? Mr Quinn used to spend 40p on lunch on working days. The cost was disallowed - but that's not my point, which is how times have changed: 40p for lunch, now you can't even rent a chair in a coffeehouse for twice as much (and twice that again).

Someone mentioned subsistence but... anybody thinking this coffeehouse is starting to sound like a permanent workplace?

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Replying to Tax Dragon:
RLI
By lionofludesch
17th Apr 2020 16:59

Anyone remember the 15p daily allowance for Luncheon Vouchers ?

Rather like the IHT Annual Exemption, it was never increased but, at the time it was introduced, you could get a two course lunch for 3/-.

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Replying to lionofludesch:
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By Tax Dragon
17th Apr 2020 17:05

lionofludesch wrote:

at the time it was introduced...

When was that, Lion? (I was going to say surely no one in here remembers getting two courses for 15p, but I better tread lightly in case it's more recent than I might realise!)

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Replying to Tax Dragon:
RLI
By lionofludesch
17th Apr 2020 17:18

Tax Dragon wrote:

lionofludesch wrote:

at the time it was introduced...

When was that, Lion? (I was going to say surely no one in here remembers getting two courses for 15p, but I better tread lightly in case it's more recent than I might realise!)

I think it was 1959.

Can't remember that far back but I can certainly remember paying around 25p for a bar meal in a pub when I was at uni.

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Replying to lionofludesch:
Red Leader
By Red Leader
17th Apr 2020 17:14

I do remember it coming up in exam questions.

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Replying to Tax Dragon:
7om
By Tom 7000
17th Apr 2020 17:02

No because the bills would be huge if he spent over 40% of his time there after the first 2 years.

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Replying to Tom 7000:
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By Tax Dragon
17th Apr 2020 17:35

I was jesting, but since you've posted a serious answer... have you jumped straight to the 'deeming' part and skipped over the basic definitions? I just wonder whether some of the suggestions above (e.g. PR) would represent ongoing work, not tasks of limited duration. If so, are they suggestions that could possibly cause more issues than they seek to solve?

I'm all for calling things what they are. Keep life simple.

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By pauljohnston
18th Apr 2020 18:24

The first question would be have you got receipts or proof of purchase. Tell him that in your opinion it is entertaining unless he is by himself. By that you have sympathy with his case and that you are happy to treat 50% of those that involve more than one person as entertainment and the rest as subsistence. Also would tell client that the subsistence part could be challenged to the taxman

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