Entertainment Expenditure — Provision of Coffee for Employees
We often see instances of business owners purchasing food and drink and wishing to claim a deduction through the business. Whilst the general permission will give some guidance there is a further regime that can apply to limit the claim you make – the entertainment regime. The following question and answer from CCH illustrates the rules in terms of coffee being purchased for staff.
A company is considering three options for providing coffee and other light refreshments to its employees while they perform their normal employment duties on the company’s premises. It will not provide refreshments for employees while they travel for work or while they attend conferences or educational courses.
Option A is to purchase a coffee machine for employees that will be situated and used on the company’s business premises.
Option B is to purchase takeaway coffee and light refreshments from a neighbouring café which will be brought back to the company’s premises for the employees.
Option C is to pay for coffee and light refreshments which the employees will consume at the neighbouring café.
To what extent will the expenditure the company incurs under each option be deductible for tax purposes?
Expenditure incurred by an employer in providing coffee and other light refreshments to its employees while they are performing their normal employment duties will generally be deductible expenditure for tax purposes. However, if the expenditure is expenditure on one of the types of entertainment described in the entertainment expenditure rules, only 50% of the amount of expenditure will be deductible.
Among the types of expenditure on entertainment that are only 50% deductible is expenditure on food and drink where the person provides the food and drink off their business premises.
Expenditure on food and drink provided on the person’s business premises is generally fully deductible. However, where the food and drink provided on the business premises is more than a light refreshment and is provided either for a celebration or party, or in an area of the business premises reserved for senior employees, the expenditure will only be 50% deductible.
Expenditure incurred by the company for a coffee machine to provide employees with light refreshments on the company’s business premises will be 100% deductible. As the coffee is provided on the business premises of the company and is only light refreshment, deductibility of the expenditure is not limited to 50%.
Expenditure the company incurs in purchasing coffee and light refreshments from the neighbouring café for consumption by its employees on its business premises will be 100% deductible. As with Option A, because the coffee is provided on the business premises of the company and is only light refreshment, deductibility of the expenditure is not limited to 50%.
Expenditure the company incurs purchasing coffee and light refreshments from the neighbouring café for its employees to consume at the café will only be 50% deductible. Because the expenditure relates to food and drink that is not provided on the company’s business premises it is not fully deductible.
Reference Income Tax Act 2007, ss DD 1, DD 2, DD 11 (“business premises”).