Date of publication: November 2018
With regard to expenditure on travel, subsistence, meals and hospitality the rules in the UK are quite strict, and also quite complicated!
This guidance covers all sorts of costs, from travel (flights, rail fares etc.) to meals and hotel accommodation.
The first question to ask yourself is “on whose behalf is the expenditure incurred- are they an employee of the UK company or not?” If the subject of the expense is not an employee (or a contractor who in all other respects fulfils the role of an employee) of the UK company then the expense is classed as business entertaining. This means that expenses in connection with employees of overseas group companies visiting the UK will be classed as business entertaining.
Business entertaining is not a deductible expense for corporate income tax, and VAT recovery is also blocked. Therefore, if you have an employee visiting from an overseas group company the UK host cannot recover VAT on that individual’s hotel bills etc. and the expense must be added back for tax purposes.
It is preferable for the individual traveling to recover their expenses from their employing company. This is also important from a UK income tax perspective- most overseas employees visiting the UK on a short term basis will remain on the home country payroll, and this is allowed by concession. A condition of the concession is that the UK company may not bear the cost of their employment and this includes the costs of travel and other expenses, these must be charged to the overseas employer not the UK company. If the VAT is significant, however, there maybe means for the overseas company to recover this directly.
If you are incurring the expense on behalf of an employee of the UK company then the next question you must consider is “what is the purpose of the expense?” There are, broadly speaking, three possibilities:
Food provided in the office. Another common area of confusion is when food and drinks are provided in the office. The provision of basic refreshments (tea, coffee, etc.) is ignored for tax purposes. There are rules which allow for employers to provide meals in the office as a tax free benefit to staff. The rules are really designed for offices with free or subsidised canteens- the offer or food must be open to all staff (though not all have to participate) and the food must be provided on site. There are similar rules which allow for the provision of food on site during meetings to be treated as tax free, where the food is merely provided to avoid the necessity of stopping the meeting for people to go and eat. It is important that in both cases the food must be provided on site- if you go to a restaurant to hold a meeting then the cost of the food would be classed as either business or staff entertaining, depending upon the attendees at the meeting.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please seek legal advice if you have any questions about the information set out above.
Copyright © 2013 - Oury Clark.