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Spotlight on… Are business lunches tax-free for employees?

In this edition, Global Mobility Director Robert Salter looks at the need for employers to have a far greater understanding of when employees can or cannot claim for business lunches.

Why is it relevant?

There has been much controversy about costs incurred by government ministers in terms of business lunches, and as with many parts of the UK tax regulations the rules regarding business lunches can be complicated. It is therefore easy for businesses to make innocent mistakes regarding the treatment of these costs.

Who is it relevant to?

Any employer whose employees are claiming for business lunches must be aware of the regulations that apply, and with-it the ability to argue when business lunches are tax-free for employees.

What do you need to know?

Firstly, you must separate the treatment of ‘staff lunches’ from those costs which are incurred on ‘business entertaining’.  In many regards, the tax rules around staff lunches are more restrictive than those around business entertaining expenditure.

Staff lunches would typically only be tax-free if regarded as ‘reasonable’, provided for via a canteen facility, and available to all staff.

Meals where fine wines are provided would not be tax-free, and such costs would need to be reported as a taxable benefit on the employees’ Form P11D.

One also needs to consider the rules around business entertaining.  In this regard, meals with clients (or potential clients) can potentially be regarded as ‘tax-free’ for the employees if the costs are incurred wholly, exclusively, and necessary in the performance of the duties of employment.

However, simply meeting a contact for a ‘catch-up’ would not necessarily satisfy the rules if the event were basically a social chat.  Or, alternatively, the costs which are being incurred are unreasonable in the circumstances, such as spending several thousand pounds on a meal with a very small client. HM Revenue & Customs (HMRC) could ask whether those costs were incurred for commercial reasons or just a ‘hidden way’ of rewarding an employee.  If the latter, HMRC would hold that the costs are in broad terms ‘earnings’ for the individual and should be reported as taxable compensation.

What should you do next?

If you would like to discuss the above or understand further the regulations around business lunches, our team would be delighted to discuss this with you. Please contact Robert Salter using the details on this page to discuss your requirements.

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