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Difference between 'Subsistence' and 'Entertainment'

Have you ever come across expenses for restaurants, fast food, coffee bars, drinks, etc. and not sure how to allocate them in bookkeeping? Well, then let's make a little clarity and distinction on the issue, and on how it is best to treat it under the Corporation Tax and VAT regime.

Any accommodation, food and drink costs incurred whilst you are away from your permanent workplace are usually fully deductible for the company from corporation tax and all the UK VAT can be reclaimed, however there could be some exceptions.

Subsistence is food & drink paid by the company or reimbursed to employees in specific circumstances.

For example, a Director has a team lunch or takes the team, an employee buys breakfast, lunch and dinner when visiting a client, or during a business trip, and so on.

This is not applicable when employees work from their usual place of business (either office or home), or buying food & drink on a normal commute to work.

Business Entertainment is where you buy food & drink for a client (owners or employees of the business) for entertainment purposes. These costs can be claimed in the company accounts but they are not deductible from Corporation Tax and cannot be reclaimed any VAT. You can still put these through the business as they do not attract any income tax or National Insurance liabilities.

There is an exception to the VAT rule, as you can in fact claim UK VAT on client entertainment where you are entertaining an overseas customer, whilst they are visiting the UK.

Staff Entertaining is where you primarily provide food & drinks to employees for enjoyment & business morale and pay for it through your business. This typically attracts tax relief and you can reclaim the VAT too. In this case however, unless this staff event is specifically allocated as the annual staff party -with a £150 per head spend limit- (usually for the Christmas Party for instance), these costs will attract income as the business is providing a benefit to the employees and class 1b National Insurance will be paid on them.

In the light of the above, it is therefore necessary to pay close attention when deducting costs or claiming VAT on meals and drinks expenses, to avoid to get benefits which would normally be disallowed, and we always should receive some level of evidence and correspondence from the client whether the cost is for entertaining clients or for team meals.

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