Can your company claim meals for staff working away?

Can your company claim the cost of meals for employees and directors when they're working away from the office?

As a general rule, yes, as long as it's subsistence and not entertainment.

The tax rules for the two are completely different.

What counts as subsistence?

Subsistence covers reasonable food and drink while travelling or working away for genuine business purposes.

HMRC's guidance for employers describes subsistence as meals and any other necessary costs of travelling. Its Employment Income Manual treats travel expenses as including necessary subsistence costs incurred in the course of a business journey, the cost of meals necessarily purchased while an employee is at a temporary workplace, and accommodation with any necessary meals where an overnight stay is needed.

The cost has to arise from the journey. HMRC's example is a sandwich bought at a station while travelling on business, which qualifies, against a sandwich prepared at home and eaten on the way, which does not. The journey between home and a permanent workplace counts as private travel, which is covered in travelling to your own office.

How is subsistence treated for tax?

This is deductible for corporation tax, and there's no tax implication for the employee either.

On the company side, HMRC's Business Income Manual says that where a business trip means one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible, and that reasonable expenses on occasional business journeys outside the normal pattern can be allowed. It adds that only reasonable expenses may be allowed and that claims must be supported by adequate records made at the time.

On the employee side, HMRC's guidance is that where an employee would have been entitled to tax relief in full for an expense, the employer does not need to deduct tax or National Insurance from the payment or report it. The exemption applies where the company pays back the employee's actual costs, or pays a flat rate that is either a benchmark rate or a rate approved by HMRC. If the company reimburses more than the necessary costs of the business travel, the extra counts as earnings.

What changes when the meal becomes entertainment?

Entertainment is a different story.

Take a client out, or the meal shifts from fuelling work to hosting someone, and different rules kick in, with much tighter restrictions on what's deductible.

HMRC defines business entertainment as the provision of free or subsidised hospitality or entertainment, and says the person being entertained may be a customer, a potential customer or any other person. With certain exceptions, the cost is not allowable as a deduction against profits, even if it is a genuine expense of the business.

The restriction reaches further than the bill for the meal. HMRC's manual says no deduction may be made for expenditure that is incidental to business entertainment, and that a payment to an employee for entertaining is disallowed whether it reimburses specific spending or is a general entertainment allowance. One of the exceptions is entertaining your own employees, which is covered in client entertaining and staff entertaining.

How do subsistence and entertainment compare?

Which question should you ask each time?

The key question to ask each time: is this genuinely subsistence while working, or is it entertaining someone?

Get that distinction right, and you'll know exactly where you stand.

HMRC's guidance for employers says you must keep a record of the date and details of every expense or benefit you provide. Its example is a reimbursed travel expense, where the record should show when and why the employee travelled, with receipts kept where possible.

For the wider list of costs a company can put through, see the expenses checklist.

Exemptions, rates and HMRC's approach change, and whether a meal is subsistence depends on the facts of the journey, so this is general information rather than advice on your own expenses. If you want your expenses policy checked, talk to us.