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. And, the input VAT is not recoverable, per VAT Notice 700/65.
Annual staff function (e.g. Xmas party) ✅ Annual staff functions are an allowable expense provided the following criteria are met:
The event is open to all employees
The cost of the event does not exceed £150 per employee (or £150 between the your employee and their spouse, if non-employed spouses are invited)
The £150 includes VAT, and other costs such as transport and accommodation
The £150 is a limit, not an allowance (if the function costs £151 per employee then the whole amount becomes a taxable benefit-in-kind)
The function is annually reoccurring (e.g. Christmas Party) and not a one-off (e.g. Company's 100th Year Anniversary)
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.
Other notes:
If there is more than one function or party within a tax year, as long as the cost does not exceed £150 per employee for both functions, it will remain exempt from Income Tax. But, importantly both functions should be regular annual, not one-off, events.
Input VAT is recoverable if the function was for employees and not customers/suppliers.
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
Where the subsistence expense meets the above tests and is allowable for tax, then the input VAT is also recoverable (if a valid VAT receipt shows VAT paid). See VAT Notice 700, section 12.
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