Does anyone have a good understanding of entertaining

katy123

I've just come across an article that refers to the 'an exchange' concept for allowable expenses for food and drink.

"Let’s imagine you’re a freelance journalist and you want to speak to say Andy, who has a world of experience on a topic you’re writing about. You offer a lunch in exchange for his insight into the topic which you’re researching.

Because Andy is coming to the table with something of value but not benefitting from it apart from getting a free lunch, you’re allowed to claim the expense, even though it appears as entertainment."

https://businessadvice.co.uk/tax-and-admin/year-end/keeping-hmrc-happy-when-claiming-expenses-such-as-holidays-and-golf-lessons/

Any idea what this 'an exchange' is really about, google brings up nothing. Thanks.

Pennywise

This is the extract from the HMRC manual:-

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45014

katy123

Pennywise wrote: »

This is the extract from the HMRC manual:-

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45014

@pennywise, thank you, you are very wise!....

dont_use_vistaprint

Maybe I'm oversimplifying it but isn't this just business lunch same as if your meeting clients, prospects, suppliers ? Businesses claim this as expenses all the time, you're not taking them on a holiday or golfing, its just food, you gotta eat at work and unreasonable to take sarnies when on the road.

00ec25

dont_use_vistaprint wrote: »

Maybe I'm oversimplifying it but isn't this just business lunch same as if your meeting clients, prospects, suppliers ? Businesses claim this as expenses all the time, you're not taking them on a holiday or golfing, its just food, you gotta eat at work and unreasonable to take sarnies when on the road.

yes you are oversimplifying and taking "entertainment" too literally

in all circumstances where the company pays the whole cost of food and drink for both its own employees and non employees, that makes the whole cost into business entertaining and thus disallowed for corporation tax relief

in simple terms: the company can pay for the food, but cannot deduct the cost when working out is taxable profit figure. So yes, the company "claims" the cost but it destroys its profitability and adds to its tax bill.
compare:
a) sales £110, stationery purchase £10, employee only food £50 = £50 profit. Tax 19% = £9.50 so retained profit (and coincidentally also the cash at bank) = £40.50
b) sales 110, stationery 10, business entertaining 50
taxable profit 110 -10 = 100 tax 19% = £19
cash retained: 110 -10-50-19 = £31

the business entertaining has cost the company an extra £9.50 of tax so both profits and cash left are lower (ie 19% of £50)

and no you haven't "gotta eat" at the company expense, you have to pay for that yourself, just like your own commuting cost. The company can pay for your food only when it is yourself eating it and you are away from your normal place of employment and not entertaining others whilst doing it

katy123

so considering this more, one can offset against CT if food/drink expenses are incurred at a meeting (quid pro quo) -assuming the meeting was to discuss business related issues. What if the meeting takes place then a gift is sent to the person who has kindly offered to help. Would the gift be allowable as it relates to the meeting that has already taken place?

00ec25

katy123 wrote: »

so considering this more, one can offset against CT if food/drink expenses are incurred at a meeting (quid pro quo) -assuming the meeting was to discuss business related issues. What if the meeting takes place then a gift is sent to the person who has kindly offered to help. Would the gift be allowable as it relates to the meeting that has already taken place?

you are stretching the point...

by definition, the quid pro quo has to be of equal value and has to flow from a legal obligation to provide a service in return for "payment"

a journalist shoving a traditional bung to their "source" in the form of a meal + gift would need to evidence that the "info" obtained from the "source" would have cost £x to have obtained via a "normal" arms length purchase and show that the source was contracted to provide it

document a written contract with your source in which you agree a price for their info... how you then pay that price is up to you: food + gift for example. the source will then declare that price as taxable income for themselves as that is the whole point of the exercise, you cannot claim as a tax cost something that someone else does not declare as taxable income.

katy123

00ec25 wrote: »

you are stretching the point...

by definition, the quid pro quo has to be of equal value and has to flow from a legal obligation to provide a service in return for "payment"

a journalist shoving a traditional bung to their "source" in the form of a meal + gift would need to evidence that the "info" obtained from the "source" would have cost £x to have obtained via a "normal" arms length purchase and show that the source was contracted to provide it

document a written contract with your source in which you agree a price for their info... how you then pay that price is up to you: food + gift for example. the source will then declare that price as taxable income for themselves as that is the whole point of the exercise, you cannot claim as a tax cost something that someone else does not declare as taxable income.

Couple of observations, the evidence of cost via normal arms length is extremely vague, lots of discretion can be placed here. A written contract? There's no mention of that in the various articles I've come across. The business income manual reference kindly provided by pennywise does refer to 'given as part of a contractrual arrangement' so I'm wondering if there's a mis match in HMRC rules vs how it's done practically. It's hard to ask say a friend who is a solicitor to talk about legal issues whilst you treat them for lunch, then present them with a contract to sign (valued at x), this is ridiculous. It's a akin to adding up to the penny your savings interest for self assessment. Most people just put in an estimate and it's something HMRC will rarely question as it's normally a few pounds.

00ec25

katy123 wrote: »

It's hard to ask say a friend who is a solicitor to talk about legal issues whilst you treat them for lunch, then present them with a contract to sign (valued at x), this is ridiculous. It's a akin to adding up to the penny your savings interest for self assessment. Most people just put in an estimate and it's something HMRC will rarely question as it's normally a few pounds.

oh come on, can you really not see that if you "treat" someone in exchange for legal advice it is no different to them giving you a sales invoice and you paying it

if you seriously think it is correct to submit estimates of interest without declaring that you have used an estimate on your tax return then you have not read your tax return and are guilty of tax fraud - which seems to be the angle you are wanting to take anyway by looking to pay someone for something without declaring it for tax

katy123

00ec25 wrote: »

oh come on, can you really not see that if you "treat" someone in exchange for legal advice it is no different to them giving you a sales invoice and you paying it

if you seriously think it is correct to submit estimates of interest without declaring that you have used an estimate on your tax return then you have not read your tax return and are guilty of tax fraud - which seems to be the angle you are wanting to take anyway by looking to pay someone for something without declaring it for tax

I see your point now, thank you. Like always, the devils in the detail, thanks again. Hope you have a great new year.