An entertaining question: what’s deductible?

The cost of “business entertainment” isn’t tax-deductible. The following question from a client and the answer to it bear repetition.

Q. I am a business consultant. I know “entertainment” has to be added back but I often use coffee shops as meeting venues. It’s cheaper and much more convenient to buy a couple of coffees and croissants and have the meeting there than to rent a meeting room or a serviced office. But over a year, the costs do mount up: can I claim tax relief on the basis that this isn’t in truth or in substance “entertainment” but simply a cost of hiring somewhere to meet?

A. Sadly not. The law denies relief for “expenses incurred in providing hospitality of any kind”. As a matter of fact the expense that you incur is that of buying a coffee and croissant, which are provided to the client. Giving the client a coffee and croissant is “hospitality”, whichever way you look at it. So HMRC will not accept that the expense can be anything other than an expense in providing hospitality. The fact that you are buying the comestibles only in order to be allowed to hang out at the premises doesn’t alter things: what you are in fact paying for is the food and drink, not room hire.

The tax position (and possibly your health) would be improved if you paid for the coffee and croissant and told the barista to pour the former down the sink and give the latter to the cat – there would then have been no “hospitality” (except to the cat, perhaps, which doesn’t count); or if you simply paid an amount equivalent to the price of coffee as a fee for the right to hang out at Starbucks for an hour (which is certainly neither entertaining nor hospitable). But neither of these is likely to be at all practicable.

David Whiscombe


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