Entertaining - Our 3 Favourite Tax Saving Tips
Is entertaining is ever tax-deductible?
The short answer is no - the Taxman always disallows your entertaining costs.
So, the key is to not have it categorised as entertaining in the first place. One of the easiest ways of doing this is get "entertaining" classed as "subsistence" instead.
This is because subsistence has the benefit of being both tax-deductible and VAT reclaimable - a win-win for your business.
What Is Entertaining?
So what makes a meal "subsistence" rather than "entertaining"?
The basic tax rule is that business owners may claim back their reasonable costs of meals incurred during a "Business Trip". The cost of that meal is what we call "subsistence”.
A Business Trip for these purposes is any trip away from the normal place of business, not forming part of what is considered "normal business travel".
So clearly, a trip from your office in Rugeley to a customer in London would be a Business Trip. However a trip from Rugeley to a customer two miles away in Armitage would not. This is because if you were working in Armitage you could have returned to the office for a sandwich, so any lunch you buy for yourself in Armitage is personal.
How far must you travel for it to become a Business Trip?
There is no hard-and-fast rule about how far you must travel before it becomes unreasonable for you return to the office. Nothing is stated in the Taxman's manuals to help us either. It's just a matter of whether it would have been reasonable to return home. Therefore you need to use some common sense.
Our 3 Top Tax Tips For Tax Allowable Entertaining!
- What is reasonable travel? As a general rule of thumb we take the view that if you're travelling more than 5 miles from the normal place of work, then that's the point it starts to become unreasonable to expect you to return to the office for lunch.
- How to turn "entertaining" into “subsistence”? It's purely a matter of making sure when you buy a meal it is bought as part of a Business Trip.
Therefore, if you buy a client a meal - it is entertaining and never allowable. Also, if you take a client for a meal locally the cost of your meal is also entertaining and not allowable because you were not on a Business Trip.
However, if you've travelled far enough not to be expected to return to the office then it's Business Trip and you can claim your part of the meal as subsistence.
As a result, it often pays to set up an arrangement with your customers where you have a policy of 'visitor pays'. This is because if you play host to them near your offices then all the meal is entertaining and non-deductible, whereas if the visitor pays then half the meal becomes tax-deductible.
- Are supplier visits deductible? There is an exception to this 'visitor pays’ rule (see above). If your visitor is making a direct contribution to your business (e.g. repairing or installing computers for the day) then you could pay for their meal and just claim it as part of their IT repair costs. Their meal then becomes tax-deductible as part of the computer repair costs.
Our "Entertaining" Call To Action
If you know of any other great entertaining tips which the taxman will allow that can be shared with our readers then let us know via the comments or through LinkedIn.
Don’t be shy about claiming for “entertaining" (as above) from the tax man. It is good for you, your bottom line and your business!
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Remember - Don’t Leave a TIP with the Taxman!