We often get asked about what employee food and drink expenses can be included as legitimate business expenses for a Limited Company to reduce their tax bill. A scenario might be that an employee visits a client site, buys lunch, and gets their employer to reimburse them. Is this a legitimate business expense?
In short, a Limited Company can claim corporation tax relief on food expenses where an employee (including Directors) incurs those expenses in the course of travel for the business. The business travel involved can be a short-term business trip or can be travel to a temporary workplace.
The rules are complicated, though, so read on, and we will go through the detailed scenarios of when you can and cannot claim food as an expense in a Limited Company. The rules are different for Limited Companies and Self Employed and also if you are entertaining clients. We will explain the rules about what can and cannot be claimed and the rules about temporary workplaces.
The basic rules as to what food can be claimed as an expense in a Limited Company
As we mentioned above, the basic rule for whether food can be claimed as an expense has to do with the travel expenses rules for an employee. If the employee is travelling legitimately for the Limited Company, then food purchased while they are away can be claimed as an expense.
HMRC defines legitimate business travel as “travel for necessary attendance”. Their full definition of this is that “Travel for necessary attendance is journeys that employees make to or from a place they have to attend in the performance of their duties, but not journeys that are ordinary commuting or private travel.”
A vital phrase from this is definition is “ordinary commuting.” So even if a Director pops out for lunch while at their normal workplace, this can never be a business expense.
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An exception to the rule on food expenses at the normal place of work
There is an exception to the rule that food expenses are not legitimate at the normal workplace. This exception arises if the employer provides free or subsidised meals if provided in a canteen or on the employer’s business premises. The food must be of a “reasonable scale” and available to all employees. If these conditions are satisfied, then the food provided is a legitimate business expense.
Food expenses for staff parties
There is another exception to the rule that says a team trip to the pub for lunch is not usually a business expense. HMRC allows up to £150 a year per employee of food expenses to be treated as a business expense rather than as a benefit to the employee. This allowance can either be made up of an annual event like a Christmas party or be made up of multiple events.
Food expenses from entertaining
Up until 1965, you could take your clients out for a lavish lunch and charge it as a business expense to the Company. Unfortunately, since then, even if the expenditure is wholly and exclusively for the benefits of the Company’s trade, it is disallowed explicitly for tax relief. This inability to claim tax relief applies to entertaining clients or suppliers; however, it may not apply to staff in some limited situations.
The rules around temporary workplaces and food expenses
If an employee is at a temporary workplace, then the travel expense rules apply, and any reimbursed food expenses can be claimed as legitimate expenses by the Company. This can be very beneficial for contractor Limited Companies where a contractor might be on a short-term contract at a client site. If a company sends an employee somewhere else to work, they may choose to pay for their lunch and legitimately claim the food and drink as an expense.
The rules are complex but revolve around the main point that a temporary workplace can have a maximum duration of 24 months and must not be the ordinary workplace. For example, if the employer asks a shop manager to work one day a week for 12 months in another store, this would be a temporary workplace. The other store constitutes a temporary workplace, and the work is for a limited duration. However, if this arrangement continued for over 24 months (or the Company knew that this arrangement would be for over 24 months), then this would not be a temporary workplace.
I have heard I can have a food expense of £10 a night if I am away on business
Employers can claim tax relief for food expenses for employees at a fixed rate per night or day travelling at so-called “scale rate” levels set by HMRC. However, the Company needs to have a system in place to regularly check that the employee is actually incurring these food expenses and sample them regularly. In this case, individual receipts will not be necessary to claim.
Can I claim food as an expense for my spouse?
Generally, the food expenses for a spouse travelling with an employee are not allowable as an expense for the Limited Company. However, there is an exception that if the employee is travelling abroad and the spouse is essential, maybe for translation or health reasons, then the food expenses may be legitimate business expenses.
Do I need receipts for a food expense?
Technically you do not have to have a receipt for a food expense as long as it was a genuine expense and incurred in travelling for the Limited Company. However, if the Company gets a tax inspection and cannot prove that the expense was actually incurred, this could be construed as tax fraud. Better to have receipts for everything.
Does my Limited Company need to submit P11ds for meal expenses?
A P11d is a form submitted by Limited Companies for their employees showing any taxable benefits they have received. Before 2016 Companies had to report reimbursed expenses on a P11d form for each employee at the end of the tax year even though there would be no tax or National Insurance implications. Reporting on a P11d is no longer necessary as long as the actual expenses have been reimbursed and not more.
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If you would like advice around any of these aspects in your Limited Company, please do not hesitate to get in touch with our accountants.