Subsistence, and client entertaining - both allowable business expenses surely? There is a lot of confusion around this topic, and incorrect assumptions can give you a nasty surprise when calculating which expenses are allowable at the end of the year.
Subsistence is food and drink when you are travelling away from home, or from your usual place of work, for business purposes.
For an expense to be deductible for a self-employed trader, it must have been incurred “wholly and exclusively” for the purposes of the trade. Therefore, the cost of food, drink and accommodation is not in general an allowable expense - everyone must eat to survive!
However, there are circumstances when a trader can claim subsistence expenses:
- Where a business trip by a trader necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible. The same treatment may be extended to traders who do not use hotels, for example, self-employed long-distance lorry drivers who spend the night in their cabs rather than take overnight accommodation.
- Where a deduction for travel would be allowable, then it usually follows that a deduction for reasonable expenses on food and drink for the trader would also be allowable. This is the case if certain conditions are met, such as:
- The trader does not travel to the place more than occasionally during the course of his work, or
- The trade is what’s known as an “itinerant” trade at the time. (An itinerant trader is one who travels from their home to a number of different locations for the temporary purpose of completing a job of work, before moving onto the next place).
Client or Supplier Entertaining
Basically, this is not an allowable expense for tax purposes. You can include entertaining in your business accounts where it is a legitimate business expense, but in most circumstances, you must then disallow them in your self-assessment or company tax return.
But which one is it?
Sometime subsistence and client entertaining can cross paths, so how does it work in practice? Here are some examples:
- You take some clients or suppliers out for a meal close to your home base. There is no allowable travel, and the purpose of the meal is entertaining. This would not be allowable for tax.
- You are staying away for business and buy a meal for yourself, an employee and some customers. In this scenario, whether you can claim depends on the main purpose of your trip. If it was business, and the entertaining of suppliers or customers was merely incidental, then provided you would have qualified for the subsistence expense, you can claim it.
- You travel for business with a couple of employees and pay for the evening meal for all of you. In this case, if all the usual travel and subsistence rules are met, the meal and travel would be an allowable deduction.
You can still put on events for your staff and reap the benefit. If annually, they do not cost more than £150 per head (including VAT and travel costs) and are open to all staff, such as a Christmas or summer party, they will be allowable for tax purposes.
It is important that you meet all the conditions to avoid a treat becoming a taxable benefit for your staff! For example, if you go over the £150 per head rule in a year, the whole amount becomes taxable.
Please be aware that Subcontractors do not count as staff, only those on the payroll.
What About Me?!
If you are a limited company director, on the payroll, and have other staff who are not directors, you can be included within these allowable expenses. However, companies which comprise only of husband and wife directors will not qualify if they are the only staff. Sole traders do not qualify either, as they are not employees, and the inclusion of any suppliers or customers is also not allowable.
Hopefully this has given you a good basic understanding of some of the rules and pitfalls of these types of expenses, but if you have any further questions please do not hesitate to contact us.