Entertaining and Meals Out 🍴 What is the correct tax treatment?
Updated: Aug 26, 2022
This guide deals firstly with the tax treatment of entertaining and meals out by a limited company. The second section looks at subsistence expenses (food on-the-go) for all business types including sole-traders and partnerships.
Entertaining and Meals Out 🍴 by a limited company
Can your company pay for the occasional meal out? You might be surprised at how much entertainment is allowable if you play within the rules.
Let's have a look at a few scenarios:
Two directors enjoy a meal out to discuss business ⛔ Not allowable for corporation tax. In fact, if the company does pay for the meal then the benefit should be reported and National Insurance paid on form P11D.
To avoid this needless complication the company should not pay for such meals.
Taking a customer/supplier out for a meal ⛔ Unfortunately, as above, business entertainment is not allowable against taxable profits. HMRC Guidance is found here.
Annual staff function (e.g. Xmas party) ✅ Annual staff functions are an allowable expense provided the following criteria are met: The cost of the event does not exceed £150 (inc VAT) per head. The function is annual and not a one-off. Such staff entertaining is allowable for corporation tax and no benefit in kind will arise on staff members thanks to the exemption given by Section 264 ITEPA 2003.
In fact, if there is more than one function or party within a tax year, as long as the cost does not exceed £150 per person for both functions, it will remain exempt from Income Tax. But, importantly both functions should be regular annual, not one-off, events.
Annual staff function for husband and wife company directors
✅ If a company has no other employees than its two directors (who also happen to be husband and wife), then a regularly held annual meal out costing no more than £150 per head is tax-deductible under the above "Annual staff function" rules.
Subsistence expenses 🍴 for all business types
The following guidance relates to all business types including limited companies, sole-traders and partnerships.
General rule: The cost of food and drink, and even accommodation, is by default not an allowable expense (since everyone must eat and sleep in order to live).
However, the business may claim for the costs of modest subsistence (food on-the-go) if the following applies:
✅ The business is by its nature itinerant - i.e. travels to a number of different locations to spend a short time completing a job before moving on to the next.
✅ A site/office-based business person makes occasional business journeys outside the normal pattern of their work (e.g. visiting a customer/supplier) and consumes a modest meal on-the-go.
HMRC's guidance regarding subsistence can be found at: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47705
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