Entertaining and Meals Out – What is the correct tax treatment?
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 either the company should not pay for such meals or they should be posted against the directors’ loan accounts.
A director or employee takes a client out for a meal
Unfortunately, as above, business entertainment is not allowable against taxable profits. HMRC Guidance found here.
Annual staff function (usually annual 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 £150.00 per person for both functions, it will remain exempt from Income Tax. But, importantly both functions should be regular / annual, not one-off events.
Finally, two company directors (husband and wife) enjoy a meal out together which they hold as their annual staff function. The company has no other employees. Is this tax deductible?
Yes, presuming the function costs no more than £150 per head, all staff are invited and the function is held annually.
Nb: This guidance is not to be confused with costs of travel and subsistence (i.e. modest lunches in the normal course of business travel). See my previous post here.
Enjoy saving tax?