Food & Subsistence: What Can You Expense?

Introduction:

As you may know, HMRC’s rule on business expenditure is that the costs can only be claimed when they are “wholly, exclusively and necessarily” for business use. Therefore, at first consideration, this can make it difficult to justify expensing food and drink as business expenses, as everyone needs to consume them to survive! 

Whilst, for the most part, it’s true that expenditure on food and drink would be classed as personal expenses, there are occasions where the food and drink costs that you incur can be a business expense that your business can get tax relief on. However, HMRC have specific rules in place for claiming these costs that you should be aware of, which we’ll cover in this blog. 

HMRC’s rules on food and drink expenses: 

HMRC’s rules for food and drink (i.e. subsistence) costs apply to all employees, even if you are an employee of your own limited company. This is covered within their guidance on travel and overnight expenses and in their National Insurance Manual (NIM05685). However, to try and make lighter reading, we’ll explain these rules throughout this blog…

As a general rule, claiming for food and drink expenses is inherently linked with claiming for travel expenses, as if you can claim for the latter (i.e. travel), within reason, you’ll likely be able to claim for the former (i.e. food and drink expenditure). This is due to HMRC having rules that cover both travel and “subsistence” (i.e. food and drink). 

Therefore, in order to answer when you can expense subsistence, we need to first cover HMRC’s rules on travelling costs, including “temporary workplaces” and the 24-month rule... 

The ‘40/24’ test:

HMRC’s rules prevent employers from expensing or reimbursing employee travel costs (and associated costs i.e. food and drink) for anything that is classed as ordinary commuting to their permanent workplace. However, travel and subsistence costs incurred when travelling to ‘temporary workplaces’ can be expensed and would receive tax relief. So, where does travel to and from your client’s site fall into this definition? To clarify, we need to apply two tests, sometimes referred to collectively as the ‘40/24’ test:

HMRC’s rules prevent employers from expensing or reimbursing employee travel costs (and associated costs i.e. food and drink) for anything that is classed as ordinary commuting to their permanent workplace. However, travel and subsistence costs incurred when travelling to ‘temporary workplaces’ can be expensed and would receive tax relief.

So, where does travel to and from your client’s site fall into this definition? To clarify, we need to apply two tests, sometimes referred to collectively as the ‘40/24’ test:

1. The 40% Rule - the first rule is that you can’t spend more than 40% of your working time here. So, if you need to go into the office for 1 – 2 days a week, for example, you could satisfy that this is a temporary workplace. If you spend more than 2 days out of a 5-day working week, then you’ll also need to consider the 24 month rule…
   
2. The 24 month rule – put simply, this allows contractors and freelancers to expense their travel and subsistence costs providing they won’t be travelling to the workplace for over 24 months. Importantly, this rule states that as soon as the contractor/freelancer knows they'll be spending over 24 months at this location, they can no longer claim travel or subsistence.
   
   For example, if you had a 12-month contract at a specific location that you spend over 40% of your time at and you then win a 15-month contract, they could no longer claim any travel and subsistence expenses. The ‘modification rule’ also means that even if it’s a different client, but in the same general location, this breaks the 24-month rule.

Therefore, providing you are only travelling to a workplace that is deemed as temporary, then associated subsistence costs can be expensed. However, two additional points of advice:

1. Record keeping - keep all receipts so you can evidence the costs that were incurred – for Mighty clients, you can upload them into the platform.
   
   
2. Be reasonable – whilst expensing a coffee or lunch whilst you’re on the go may be an allowable business expense, expensive champagne lunches or your weekly shop won’t be.

What about food and drink costs for (client & staff) entertaining purposes?

There are different rules for business and staff entertainment:

Business Entertainment – as long as you can justify that the entertainment is “wholly and exclusively” for business use i.e. it is to benefit the business, such as taking out prospective or current clients, you can pay for business entertainment through the business. However, it’s important to note that this won’t be corporation tax deductible, so you won’t get corporation tax relief on this expenditure. 

Staff Entertainment – for staff (i.e. you!) entertainment, there is a £150 annual event exemption. In short, HMRC allows companies to spend up to £150 per employee (including directors) on an annual event, which could be going out for a nice meal or drinks, without additional tax or national insurance costs. Rules do apply, which you can read more about within our blog here

How Mighty can help?

Using Mighty, it’s easy to categorise expenses to subsistence, business entertainment or to the annual event exemption. The platform includes plenty of tooltips and guidance to help support you, but when you need a human conversation, our accountants will be happy to help.