A lot of confusion can occur amongst startups and whether or not they can claim their business lunches as a tax deduction. In order to help eliminate some of the confusion there are a few simple steps that you can follow in order to determine whether you these expenses are tax deductible or not.
The questions that you should ask yourself, are as follows;
- Why is the food or drink being provided? What is the purpose of the food and drink being provided, if it happens to be a social setting than the chances are this is entertainment.
- What food or drink is being provided? As your meal starts to take a more elaborate form, for example there is matching wines, its starts to take the form of entertainment.
- When is the food or drink being provided? If a meal is provided during work hours than the chances of it being classed as entertainment are less likely. You do need to consider though whether or not it is social.
- Where is the food or drink being provided? If you consume the meal on your premises than its not likely to be considered entertainment. However if you go to a restaurant it is difficult to say its not entertainment.
These are the initial questions that will help you work out whether you can make a tax deduction on your business lunch.
In summary, the following rules of thumb can be used:
- Meal Entertainment is subject to Fringe Benefits Tax.
- Food or drink consumed at a social function is treated as meal entertainment.
- Generally, all meals will be treated as meal entertainment except in certain circumstances:
- A light meal is provided on your business premises as part of a working lunch/ breakfast/ dinner
- Your meal (as a form of replenishment, as opposed to being substantial/ excessive) is consumed whilst travelling for a business-related purpose, e.g. to attend a conference.
- In these circumstances, where meals are not considered entertainment, they are tax deductible and not subject to Fringe Benefits Tax.
- Morning and afternoon tea consumed on business premises (A biscuit tin and coffee machine) is not treated as a meal, but a refreshment and is tax deductible.
It’s important to note that even if you have limited facilities in which to have a business meeting (i.e. no office), so you hold your meeting at a café, it unfortunately doesn’t change the above factors in any way.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting. You can read other Tax Tips here.