Home Entertainment company Has my company’s annual meal breached the £150 exemption for staff entertainment?

Has my company’s annual meal breached the £150 exemption for staff entertainment?

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Question from the contractor: My new accountant, despite being in the same firm I have been using for a few years now, told me that HMRC entertainment rules do not allow company secretaries to qualify for the exemption of £150, and so, it follows, the company secretary is prohibited from inviting a guest, nor would such guest be covered by the £150 exemption.

This upends our company’s understanding of the staff entertainment that we provide every year in the form of a meal. Additionally, the accountant’s notice states that we are facing a benefit-in-kind expense because the company has a director and a secretary, and both of them invited a guest (their spouse/partner), and collectively, the bill amounted to nearly £500. We think the full exemption should be £600 (£150 per guest x4), but the accountant disagrees, saying only the director and the director’s guest would have been eligible.

The accountant insists, saying that the full cost of the meal will not be deducted from the tax relief and will be considered a benefit in kind, “it cannot be divided”. Please advise.

Expert Answer: First of all, I assume of course that the company is not covered by the IR35 or in the rules of “working off pay”.

Next, do not confuse what is tax deductible for the company, with the question of tax exemption for the beneficiary of the “benefit”: these are different things.

The “entirely and exclusively” test

Basically, an expense will be deductible to the business if it is incurred “wholly and exclusively” for business purposes. Remuneration is almost always tax deductible, whether in the form of cash or benefits, provided the value of all remuneration is commensurate with the duties – the £150 limit per event does not has nothing to do with tax deductibility.

Problems, or not, of the HMRC type

It is likely that there will only be a problem if HMRC suspects a non-commercial reason for the level of pay – paying large amounts of pay to a spouse or civil partner who has no substantial involvement in the business, for example.

In a small private company, a general secretary may not (as such) do much; it is therefore possible that large amounts of remuneration (of any kind) for a company secretary who merely files the accounts at Companies House may provoke an investigation. But if the only reward a company secretary receives is a “plus one” invitation to the company Christmas party, deductibility will not be an issue.

Finally, here there is no difference between a company secretary and an employee

As for the exemption of a benefit in kind, it is true that a company secretary is an office holder and not an employee (as is a director, although one or the other can also be an employee). But the distinction doesn’t matter for most tax purposes. This is because in most cases earned income tax legislation treats office holders as if they were employees – see section 5 of the Income Tax (Income and Pensions) Act 2003 ). Thus, for benefits in kind and exemptions, there is no difference. between a company secretary, a director and an employee.

The expert was tax adviser, author and mentor David Whiscombe, consultant to accountancy firm BKL.