Clarifying the costs you can claim for legitimate business activities
There’s often confusion among small business owners about what can be claimed against tax for legitimate subsistence, travel and entertainment expenses. This is because it’s a complicated topic, with different rules for different circumstances. So here I’ve outlined the basics:
This means food and drink incurred wholly and exclusively in the performance of the trade. In plain English, this means if you purchase food or drink for living (for example, your normal grocery shop) you can’t claim this as an expense.
However, if you’re travelling on a journey outside your normal pattern of work, perhaps to visit a client, you can claim for reasonable amounts of subsistence during the time of your journey. This is based on the fact that everyone has a normal place of work, for example, an office.
So buying food and drink on the way to and from your office or during the day when you’re at the office cannot be claimed as a business expense. However, if you spend time on the road because you run a van franchise and don’t have a fixed place of work, subsistence can be claimed while you’re at work.
Similarly, claiming for accommodation that is necessitated by the trade, where you are away from your normal place of work to conduct business, is allowable. An evening meal if staying away would also be permissible.
However, if you took your family away with you, only your accommodation and subsistence could be claimed against tax. If you’re taking members of your family on an away trip, you would need to be able to prove it was for genuine business purposes.
Travel expenses fall under similar rules. Mileage to and from a normal place of work cannot be claimed, nor can train tickets. However, travel to visit a client, supplier or to attend an exhibition, for example, can be claimed. For car travel, it’s 45p per mile for the first 10,000 miles then 25p per mile thereafter.
Entertainment falls into two distinct categories: customers and suppliers and staff. This is where it gets a little complicated.
Entertainment for customers and suppliers, such as the cost of taking them out to lunch, is deemed a business expense for the trade, but for tax purposes it’s disallowed. In other words, the cost can be claimed against net profit, but the business doesn’t receive tax relief on the cost.
Entertainment of staff on the payroll, however, can be claimed against tax. This includes annual events such as Christmas parties if certain criteria are met. In this way, £150 per person per year can be claimed.
Events such as parties need to be open to all and not restricted to just directors. The £150 can also cover the provision of a ‘plus one’ for each staff member. Anything up to £150 per person per year is allowable, although anything over that amount may give rise to a taxable benefit on the employee.
Taking staff out to lunch is separate and classed as incidental and allowable if the expense claim is not excessive.
Billy Whitaker is a client relationship manager at d&t, an award-winning chartered accountancy and business advisory specialist