Crack the Code on Food Costs

Crack the Code on Food Costs: What’s Tax-Deductible and What’s Not

Managing food-related expenses for your business can feel like navigating a maze—one wrong turn, and you’re facing unexpected costs or tax issues. Whether you’re treating clients, keeping your team happy, or grabbing lunch on the go, knowing the rules can save you money and headaches. Let’s break it all down.

1. Client Entertaining

What is it?

Client entertaining covers wining and dining clients, suppliers, or other external business contacts to build relationships and secure deals.

Tax Treatment:

Corporation Tax: Not allowable—these expenses won’t reduce your tax bill.
VAT: Input VAT cannot be reclaimed.

Record-Keeping Tip:

Still a legitimate business expense, so document it separately in your accounts as “client entertaining.”

Example:

Hosting a potential client at a local restaurant to discuss a new campaign? While it’s a necessary cost, it won’t save you on taxes.

1. Client Entertaining

What is it?

Client entertaining covers wining and dining clients, suppliers, or other external business contacts to build relationships and secure deals.

Tax Treatment:

Corporation Tax: Not allowable—these expenses won’t reduce your tax bill.
VAT: Input VAT cannot be reclaimed.

Record-Keeping Tip:

Still a legitimate business expense, so document it separately in your accounts as “client entertaining.”

Example:

Hosting a potential client at a local restaurant to discuss a new campaign? While it’s a necessary cost, it won’t save you on taxes.

2. Subsistence (Work-Related Meals on the Go)

What is it?
Subsistence refers to modest food and drink costs incurred while travelling for business. This includes meals during a business trip or between meetings.

Tax Treatment:

Corporation Tax: Allowable, as it’s a necessary cost of doing business.
VAT: Input VAT can be reclaimed, provided you have a valid VAT receipt.

Claiming Tip:
– Subsistence must directly relate to business travel.
– Attach receipts to your expense claims and add notes about the purpose of the trip.

Example:
Grabbing a coffee and sandwich between meetings with creative partners? Keep that receipt—it’s an allowable expense!

3. Staff Entertaining

What is it?

Costs for events or activities that reward employees and foster team spirit, such as Christmas parties, summer barbecues, or team-building events.

Tax Treatment:

Corporation Tax: Allowable if it meets HMRC’s criteria.
VAT: Input VAT can be reclaimed if you employ staff beyond directors.

Key Rules for the £150 Per Head Allowance:

The annual cost per head, including VAT, must not exceed £150.
The event must be open to all employees.
If the cost exceeds £150 per head, the entire amount becomes taxable as a benefit in kind.

Example:

A summer party costing £80 per head and a Christmas party at £70 per head would qualify as tax-free.
However, if the total cost is £160 per head, the full £160 becomes taxable.

3. Staff Entertaining

What is it?

Costs for events or activities that reward employees and foster team spirit, such as Christmas parties, summer barbecues, or team-building events.

Tax Treatment:

Corporation Tax: Allowable if it meets HMRC’s criteria.
VAT: Input VAT can be reclaimed if you employ staff beyond directors.

Key Rules for the £150 Per Head Allowance:

The annual cost per head, including VAT, must not exceed £150.
The event must be open to all employees.
If the cost exceeds £150 per head, the entire amount becomes taxable as a benefit in kind.

Example:

A summer party costing £80 per head and a Christmas party at £70 per head would qualify as tax-free.
However, if the total cost is £160 per head, the full £160 becomes taxable.

4. Trivial Benefits (Small Tax-Free Gifts)

What is it?

Trivial benefits are small, tax-free perks provided for personal reasons, such as birthdays or Christmas.
They cannot be given for business-related purposes (e.g., meeting a project deadline).

Rules:

Must cost less than £50 per transaction (including VAT).
Cannot be cash or cash vouchers (high street gift cards are acceptable).
Directors can receive up to 6 trivial benefits per year.
Other staff members have no annual limit.

Example:

Directors might use their allowance to gift chocolates at Christmas or buy coffee shop vouchers for team birthdays.
However, giving a trivial benefit to recognise a business milestone wouldn’t qualify.

5. Canteen Costs (Refreshments at Work)

What is it?

Providing refreshments to staff during working hours, consumed on the business premises.

Rules:

Must be available to all staff.
Single directors/shareholders working from home can also claim, but they must carefully document these costs to distinguish them from personal groceries.
Costs must be “reasonable” and HMRC explicitly excludes alcohol and cigars!

Tip:

While “reasonable” isn’t strictly defined, modest refreshments (e.g., tea, coffee, and sandwiches) are a safe choice.

5. Canteen Costs (Refreshments at Work)

What is it?

Providing refreshments to staff during working hours, consumed on the business premises.

Rules:

Must be available to all staff.
Single directors/shareholders working from home can also claim, but they must carefully document these costs to distinguish them from personal groceries.
Costs must be “reasonable” and HMRC explicitly excludes alcohol and cigars!

Tip:

While “reasonable” isn’t strictly defined, modest refreshments (e.g., tea, coffee, and sandwiches) are a safe choice.

6. How to Maximise Your Expense Claims

Food costs can add up quickly, so understanding the rules is essential for claiming what’s allowable and staying compliant with HMRC. Here are a few practical tips to help you:

Categorise Clearly: Keep food costs separated by category (e.g., entertaining, subsistence, or staff perks).
Keep Detailed Records: Always attach receipts to expense claims and make notes about the purpose of the expense.
Use Technology: Tools like Xero or QuickBooks can make expense tracking and categorisation easier.

Conclusion

Understanding food expenses doesn’t just save money—it brings peace of mind. Imagine knowing exactly what’s deductible, having airtight records, and never worrying about surprise tax bills. That’s where we come in.

Struggling to make sense of expense claims? Let us help you maximise every allowable expense, reduce your tax burden, and stay compliant—without the stress.

Ready to take the guesswork out of expenses? Let’s chat! Contact us now.

Conclusion

Struggling to make sense of expense claims? Let us help you maximise every allowable expense, reduce your tax burden, and stay compliant—without the stress.

Ready to take the guesswork out of expenses? Let’s chat! Contact us now.