I have a client where the husband and wife are directors of a Ltd Company. They are the only employees. They have been out for a few meals locally and have said it is a working lunch. Is this allowable for VAT and/or tax? I'm sure I read somewhere that although employees can be entertained that if the company only has director employees that they can't do it but I can't find it anywhere now. Thanks.
The whole thing comes down to duality of purpose in that we eat to live, not eat to work so it fails the wholly and necessarily test.
There are limited exceptions to the rule but your initial description is of a husband and wife going out for a meal at the tax systems expense where the business may be mentioned.
They would have eaten a meal anyway. Why should the taxman pay for it due to the location that they choose?
Its a jolly, reject.
Seperate point,
feeding / entertaining employee's also comes with major restrictions. Some companies allow entertainment of clients by employee's but thats accounting, not tax treatment and should not be confused with being tax allowable as entertainment costs, like depreciation, are added back before the tax calculations.
Again, there are exceptions such as office tea and coffee available to all (but not to clients (the most broken rule)) is allowable... Also there are rules around subsidised canteens available to all, and subsistence, and Christmas parties (which doesn't have to be a christmas party).
Overall though be careful with the impression that you give clients about what is allowable as they find it difficult to differentiate between accounting (paper) and taxable (real) profits so may well take umbridge on their being taxed on items that were allowed in the accounts.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I found this below. The meals locally would clearly not be allowed but if they both travelled to London, say, for a meeting then it would? The wife isn't currently a director, she's just an employee so do you think they could get away with it being a team meeting/staff entertainment? They work from home so it would be away from their usual place of work.
"When your business has no employees other than directors
If your business has one or more directors, but no other employees, then the issue becomes more difficult.
HMRC say that the cost of providing entertainment only to directors doesnt qualify for tax relief or a VAT deduction.
But they also say that if the directors or partners are travelling away from their normal place of work on a business trip, then any VAT suffered on the cost of travel, accommodation and meals can be reclaimed. The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and to subcontractors who are part of the team and treated like employees."
What was the business reasoning for taking staff to London? What was the business reasoning for the meeting not being held in the normal work premises? Is the wife really an employee? What does she do for the company?
Is not the key in what you are quoting the words "business trip". Where is the business reasoning behind the necessity for the trip?
In the event of an inspection what the wife really does for the business will be one of the first things that an inspector would be looking at looking for (as they go for the easy wins / low hanging fruit first).
The business is certainly not able to argue that the wife keeps the company books which is the normal excuse as they have hired a bookkeeper.
Think about what the wife does for the company and think through how you would argue the case with an inspector that the wifes employment is not simply a tax dodge.
Certainly their pushing the envelope with away days out masquerading as team meetings is a non starter.... Reminds me a little of the 1990's thing where directors (generally husband and wife) would set their AGM in places like Bermuda to justify a directors trip.
Wonder whatever happened to those as they are right at the edge of not strictly illegal to the letter of the law.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Again, there are exceptions such as office tea and coffee available to all (but not to clients (the most broken rule)) is allowable
An excellent response Shaun to Princess's questions, and very much in line with my own understanding.
I've highlighted the above, as I wasn't aware of the client side. I do bring my own tea, coffee and milk to the office, and tbh I've never given a thought to claiming it back, but if a client visits, and I offer them a drink, does that make it unclaimable tax wise?
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
But clients never have drinks at our offices John.
You make two for yourself and the thieving gits whip one! Happens every time!... I really should get myself some clients with more integrity, lol.
Its just a matter of common sense over the rules in that you purchase tea and coffee for the office and when it's gone you buy some more. I cannot see any inspector making a song and dance about that especially if you've just given them a cup of coffee from said supplies.
Seems to be one of those strange anomalies out there along with the self employed being unable to use mileage rates after they breach a rate equivalent to the current VAT threshold but the same rule does not apply to company directors who are deemed employee's.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
"I cannot see any inspector making a song and dance about that especially if you've just given them a cup of coffee from said supplies."
Well, the inspector isn't a client, so there's no problem there :p
I take it, then, that I'm the only person who keeps a record of who drinks tea and coffee that I've bought so that I can accurately disallow the proportion drunk by clients?
Okay, I don't really. You caught me fibbing, there.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Just occurred to me that I've never claimed anything for coffee.
Thanks for the replies to my original question. I have told him I'm not happy with the amount of meals/drinks and have explained why. I have asked him to go through them all and let me know which are personal/entertaining. I will then have it in writing that he has not only given me the receipts but then confirmed that they are business.
I thought we couldnt claim tea/coffee in the 'office' for a one (wo)man limited company!! I did when I employed my brother for a few months but not since - reckon the business owes me a fortune!
I get a lot of meal receipts put through - usually after they have told me they have been to xx restaurant with the hubby/wife - one was even for a michelin starred restaurant which happened to be after telling them about the one my son worked at as a chef! Did I let them put that through - certainly not!
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
