During 2018, I was engaged via my Ltd Co. to provide IT services to a client. Included in the contract was the ability to recharge expenses back to the client.
I delivered my services along with other IT Contractors, also operating via a Ltd Co, with the same expense recharge policy available in their contracts.
On a fairly regular basis (couple of times a month), as part of delivering the IT project, we had to work extended hours into the early hours of the morning. In these periods, we would often send out for a takeaway or break and go collectively for an evening meal. The project manager would often ask one of us working on the project to pay for all evening meal costs (e.g. 4x individuals) using our credit card, and then this cost was added to our invoice and we were reinbursed by the end client.
In my accounts, this would clearly show as income arising from the client, with an equal amount being claimed by me as an expense. E.g. I recharged £100 to the client for subsistence, and this from an accounting point of view would sit on my income/revenue. It would, however, be cancelled out by the claim by me of a similar £100 for evening meals, which would sit on the expenses side of my accounts. Therefore, it was seen as cost neutral.
Fast forward to my accountants presenting me with a draft copy of my CT600 and I noticed that they have not allowed these meal expenses, as they have categorised them as entertainment, and therefore not allowed against corporation tax.
This has clearly come as a nasty surprise to me, as now that same £100 income, is now subject to 19% charge of corporation tax. In essence, for every £100 it is now personally costing me £19 - when in fact, I had understood that it will be cost neutral to my company.
Can someone advise, if this is in fact correct? I appreciate the tax system doesn't always operate on the basis of fairness, but my view is that had I only paid for and claimed for myself, and the other contractors done the same each time, then this expense would have been allowable for each of us against our respective Ltd. Companies. HMRC are not losing out of revenue, and we are not claiming for anything which any reasonable person would expect. The whole arrangement for one of us paying for and producing a single claim instead of 4 individual claims to the client company was done for ease and convenience when settling the bill, not in anyway, some convoluted way to defraud HMRC of tax revenues.
Thanks in anticipation of any help or guidance.
The IT Contractor