Allowable business dinner expenses

[ninak]

Just want to check something as doing the accounts here. If two of the Company Directors go for a business lunch, can that be paid for by the company and is it allowable by revenue as a business expense?

Also if one of the Company Directors brings, in the first case an existing client, and in the other a potential client, out for dinner, is that also a business expense which can be paid for by the company and allowable by revenue?

In both these cases I think they are a legitimate business expense and can be paid for by the Company, but I am just not sure if they are acceptable expenses for Revenue in order to reduce corporation tax liability?

 

[mandelbrot]

Hi Ninak

Firstly, these are two separate types of expense.

A meal for a director or an employee is not properly a direct expense of the company, unless it was an entertainment expense i.e. the Christmas party, or an office bash of some sort. It may become a subsistence expense however, or part of the payroll cost if deemed to be part of the taxable pay of the directors.

The meal you described may be allowed to be reimbursed to the directors as a subsistence expense - i.e. the directors pay for their own meal, and submit an expense claim to the company (in practice if the amount was paid for on a company laser / credit card then the transaction would be matched to a supporting receipt for the individuals' subsistence claims). The question then is whether or not there is a valid claim to subsistence, and there are rules in that regard (see pages 6-9 in particular here [broken link removed]). If it was simply the case that the 2 directors were at the office and decided to go to the restaurant around the corner for lunch, then that would not be a valid claim. If the office in Cork, and both directors were out of the office on business that day for >5 hours, and met for lunch in Mallow, then there may be a valid claim.

If there is not a valid claim to subsistence then the amount would be properly analysed as a BIK and liable to PAYE/PRSI, or else posted as an item in the directors' current/loan account.

As regards the second item, where the director brings clients or potential clients out for dinner, these are business entertainment expenses and are specifically disallowed under S.840 TCA 1997 ([broken link removed]). It will be an accounting expense but should be added back in the adjusted profit computation.

 

[ninak]

Ok thanks mandelbrot. I have been doing a bit of reading up this evening and had come to the same conclusion myself on the dinners with clients. Thanks for the clarification on the director's having lunch together though. That I was not sure about.

 

[Eithneangela]

Wow! Really interesting following that! We've come a long way from sticking everything that moves on to the company expense sheet - long may it last! Politicians, please note! We pick up your bills - we are entitled to examine them also.

 

[sustanon]

I would take the other side of that coin, many restaurants could greatly benefit from companies being allowed to expense customer entertainment/dining. It all has to roll downhill, The tax code makes this difficult if not impossible.

Reading the above, I would not bother bringing customers out, but in the US I do it all the time. I tip 20% too.

 

[mandelbrot]

I would take the other side of that coin, many restaurants could greatly benefit from companies being allowed to expense customer entertainment/dining. It all has to roll downhill, The tax code makes this difficult if not impossible.

Reading the above, I would not bother bringing customers out, but in the US I do it all the time. I tip 20% too.

Well, given the corporate tax rate here is 12.5%, if you tipped 10% instead of 20%, you wouldn't be losing out much... Last of the big tippers!

Of course the same rule applies to sole traders and they're losing out on relief at the marginal rate. But given that it's an area thats wide open to abuse - for one thing you'd have people "entertaining" at their local pubs & restaurants every weekend - it's not hard to see why the rules are the way they are.

 

[T McGibney]

Its all about context. Of course claiming 'entertainment' dinner expenses every weekend isn't going to wash anywhere. And still, the problem remains that the Irish tax code's rules governing sole traders' meals, accommodation and travel expenses are notoriously restrictive and complex, and compare extremely unfavourably with the equivalent treatment in the UK and elsewhere. Not a bit wonder that so many of our hotels and restaurants are bust.

 

[sustanon]

Exactly my point, there are a few small changes that can inject cash into the system, you have to make it easy for corps to spend their money

 

[smeharg]

Exactly my point, there are a few small changes that can inject cash into the system, you have to make it easy for corps to spend their money

I've yet to see a business refer to the lack of tax relief as a reason not to entertain clients.

Some of these posts imply that businesses would spend more on client entertainment if tax relief was available. I like to see the evidence to support that.

When businesses entertain clients the focus is single minded - keep the client happy/woo the potential client. Lack of tax relief would generally be regarded as a pain, but I don't think it would be a factor in deciding to spend on client entertainment.

 

[mandelbrot]

I've yet to see a business refer to the lack of tax relief as a reason not to entertain clients.

Some of these posts imply that businesses would spend more on client entertainment if tax relief was available. I like to see the evidence to support that.

When businesses entertain clients the focus is single minded - keep the client happy/woo the potential client. Lack of tax relief would generally be regarded as a pain, but I don't think it would be a factor in deciding to spend on client entertainment.

+1

Particularly when you are talking about corporates, where the lack of tax relief effectively makes the entertainment 12.5% more costly.

You could possibly argue it makes them inclined to spend 10-15% less on entertaining, but not that it deters them from spending at all.

 

[Purple]

I've yet to see a business refer to the lack of tax relief as a reason not to entertain clients.

Some of these posts imply that businesses would spend more on client entertainment if tax relief was available. I like to see the evidence to support that.

When businesses entertain clients the focus is single minded - keep the client happy/woo the potential client. Lack of tax relief would generally be regarded as a pain, but I don't think it would be a factor in deciding to spend on client entertainment.

+1 on that as well.
There's no way two directors of a business should be able to pop out for lunch and then count that as a cost. They shouldn't pay for it with a company credit card either; it's not a business expense. If the business does pay for it the directors should pay BIK.

 

[T McGibney]

Some of these posts imply that businesses would spend more on client entertainment if tax relief was available. I like to see the evidence to support that.

When he relaxed the VAT deduction restrictions for conference expenses, the late Brian Lenihan claimed that this would boost the conference business sector. There is no reason why a more favourable tax treatment of business meals, accommodation etc should not do likewise. Basic intuition (and economics) would suggest that it would.

 

[T McGibney]

+1 on that as well.
There's no way two directors of a business should be able to pop out for lunch and then count that as a cost. They shouldn't pay for it with a company credit card either; it's not a business expense. If the business does pay for it the directors should pay BIK.

This is the strawman that it is dragged out every time this subject is discussed. Oddly enough, it is utterly irrelevant as the tax treatment of bona fide directors travel costs is actually benign. However it is not so benign for sole traders and partners.

 

[Complainer]

I would take the other side of that coin, many restaurants could greatly benefit from companies being allowed to expense customer entertainment/dining. It all has to roll downhill, The tax code makes this difficult if not impossible.

If you want to incentivise spending on these businesses, why would you limit it to corporate spending? Surely it would make more sense to cut VAT rates, so that business spenders AND personal spenders are more inclined to spend?

 

[Purple]

This is the strawman that it is dragged out every time this subject is discussed. Oddly enough, it is utterly irrelevant as the tax treatment of bona fide directors travel costs is actually benign. However it is not so benign for sole traders and partners.

Can you expend on that?
I'm not disagreeing with you but what do you mean by "the tax treatment of bona fide directors travel costs is actually benign"?

 

[T McGibney]

Can you expend on that?
I'm not disagreeing with you but what do you mean by "the tax treatment of bona fide directors travel costs is actually benign"?

I thought it was rather obvious to be honest. Directors, like all employees, can avail of tax-free civil service rate subsistence payments in respect of work-related travel, even for unreceipted costs. In contrast, this concession is not available to self-employed and partners, even for some receipted costs.

 

[T McGibney]

If you want to incentivise spending on these businesses, why would you limit it to corporate spending? Surely it would make more sense to cut VAT rates, so that business spenders AND personal spenders are more inclined to spend?

Targeted tax incentives, aimed at encouraging a particular economic activity, are generally more efficient in doing so than generalised tax rate cuts that stimulate general economic activity.

For example, the Bike to Work Scheme has been far more successful in encouraging bike use than an equivalent VAT cut (eg from 23.00% to 22.99%) would have been.

Whether or not the State, in the first instance, should be using targeted tax incentives to influence economic behaviour, is another question entirely.

 

[Purple]

I thought it was rather obvious to be honest. Directors, like all employees, can avail of tax-free civil service rate subsistence payments in respect of work-related travel, even for unreceipted costs. In contrast, this concession is not available to self-employed and partners, even for some receipted costs.

OK, I didn't get that from your post but I agree.