NEWS - EXPENSES - 24.05.2007

A bottle of your finest

General rule. Under general income tax law, as a director or employee you are taxable on the full amount of “emoluments” received, which includes expenses. However, there is an exemption for expenditure necessarily incurred in the performance of your duties. This covers related subsistence costs. In practice, this includes the cost of a “reasonable level of refreshment (both alcoholic and non-alcoholic)” and refreshments such as tea and coffee or soft drinks between meals. (Personal Incidental Expenses - Guidance notes for employers, Press Release May 16, 1995.) So how far can you push this?

Directors’ perks. Tax inspectors have to stick with the phrase “on a reasonable scale” when trying to reject deductions for directors’ expenses. They can’t treat your expense claim as unreasonable simply because it’s different from the provision for other staff, even if it’s more generous. The Taxman’s example of unreasonable expenses involves an “elaborate menu, fine wines and cigars”.

Tip 1. Alter your company’s expenses policy to cover alcoholic drinks taken in conjunction with a meal. It should say what you consider a reasonable level of alcoholic refreshment is with a meal, when away on business. For directors this could be a pre-dinner drink and half a bottle of wine with the meal. (See The next step.)

Tip 2. To be ultra cautious, you can approach the Taxman to have this wording included in your (existing) dispensation covering expenses paid for employees (in the context of travelling expenses).

Tip 3. If the Taxman queries your request, ask him to read and comment on a report published on his website. It reads “alcohol limits - can have half a bottle of wine as an allowable expense up to any value, but only £5 on any other drink”. (KPMG LLP report on Administrative Burdens HMRC Management Project.)

The next step

For a free sample wording for a company expenses policy, visit http://tax.­indicator.co.uk (TX 07.16.01)