In the coming weeks, there’s a good chance you’ll be attending parties, catching up with clients and enjoying a drink with old associates. In this festive edition of these circulars, I’ll look to explain what elements of the cost your Christmas, and indeed all-year-round, consumption, are an allowable business expense eligible for deduction against taxable profits. Spreading the cheer…
TRAVEL, SUBSISTENCE & ENTERTAINMENT
3rd December 2018
First let’s deal with the easier bit – travel. The cost of any business journey, other than your ordinary commute, is tax deductible. An ordinary commute is a journey between your home, and your regular place of work. A workplace can be deemed as temporary (and therefore not part of a commute) if it is travelled to for no more than 24 months and/or 40% of the time. It also needs to be a departure from your usual base of operations.
Costs can include ticket prices for public transport, taxi fares, parking charges and road tolls. Fines for dodgy parking or speeding are not allowable expenses. If business journeys are completed using a private vehicle, a mileage charge of 45p for the first 10,000 miles and 25p thereafter can be applied.
Business travel can also involve overnight stays. HMRC allow reasonable deductions for accommodation. A weekend break at the Savoy would probably not be considered reasonable for a ½ hour catch up with a colleague in London for example.
Subsistence is where things become a little more complex. Organisations can create special exemptions, formerly known as subsistence dispensations, in which rates are agreed and evidencing is not required. However, in the absence of such exemptions, the HMRC starting rates are as follows (remember, these costs aren’t an entitlement, they actually have to have been incurred):
Breakfast rate – Up to £5 for a pre 6am start. This needs to be an irregular event
One meal rate – Up to £5 can be paid when away from home or normal place of work for 5 hours or more
Two meal rate – Up to £10 can be paid when away from home or normal place of work for 10 hours or more
Late evening meal rate – Up to £15 can be paid for a finish after 8pm having worked a normal working day. This also needs to be an irregular event.
Your business can supplement these amounts with ‘incidental overnight expense’ reimbursements of £5 per night in the UK and £10 per night outside of the UK. These expenses include things like newspapers, laundry and telephone calls for example.
Remember, travelling to a location in performance of a contract deemed to be in scope for IR35, change the application of the travel and subsistence rules. This is because you are travelling to and eating/drinking at a location that is recognised as being your regular place of work.
As I’m sure many of you are aware, perhaps to your disappointment, the entertaining of your clients is not a tax deductible expense.
However, entertaining your staff is an allowable business expense, provided it is not part of a salary sacrifice scheme. This can include venue hire, food, drink, entertainment and accommodation.
Because entertaining your staff is effectively a benefit, in principle it then becomes subject to income tax and national insurance contributions. Presenting your staff with a tax bill for attending Christmas drinks probably won’t go down well, particularly amongst the less willing attendees, who let’s say only went along for an orange juice to keep the boss happy.
Thankfully the ‘annual party exemption’ comes to the rescue. This is an allowance of £150 per employee per year, exempt from income tax and NI, provided it is spent on one or more annual event(s) and is open to all. Any expenditure in excess of this would then be considered a taxable benefit.
There are subtly different rules for sole traders and other unincorporated entities, largely around the definition of ‘staff’. For example if you are a sole trader, or in a partnership, or employ only a family member, then technically no staff exist and therefore the exemption cannot be applied.
There are lots of nuances around travel and subsistence rules, mainly in response to abuses in the past. Consider what you would deem to be reasonable and check if it’s wholly and exclusively in the service of your business. Generally speaking, if the answer is yes to both then it would be allowable.
Remember, if you are VAT registered, any VAT suffered on your travel, subsistence and entertainment purchases (including the fuel element of your mileage charge), can be reclaimed on your quarterly VAT returns.
Previous additions of my circulars are included below. If you’d like to discuss rules on travel, subsistence and entertainment or indeed any of the other topics covered so far, please give me a call.