Entertaining Staff and subbies

JodieR

Client is hosting a summer BBQ for the following people:
*Both directors and their wifes (no other employees in the company)
*A subcontractor and his wife

He wants to know if the cost will be allowable (and whether there's any P11D implications). The company has been going for about 3 years and never had any xmas parties or any other events.

Does anyone have a simple answer, I feel like I'm going round in circles on HMRC's website.

jamesm96

JodieR wrote: »

(no other employees in the company)

Sorry to be pedantic; do you mean there aren't any other employees, or that there are but they're not invited?

JodieR

There are no other employees at all, it's just the 2 directors on the payroll.

The whole thing is pedantic (it's my most pedantic client), that's why I'm getting annoyed with it!

Monsoon

I think it's a case of £150 per employee per year, disallow the proportion for non e'ees. I think.

Have you checked HMRC Manuals instead of their main website?

Or CCH Online through your AAT subs?

JodieR

I think that the answer is that regardless of the costs the whole amount can go through the accounts but on the tax comp you'd dissallow the proportion that related to non-staff and partners ie in this case one third.

Then if the total cost per head exceeds £150 then there's P11D implications.

Client is on flat rate VAT so VAT implications are luckily irrelevant!

stevo5678

I dont think its allowable myself. Subbies obviously not staff and in this context it is entertaining which is not allowable.

JodieR

Interesting angle... Where does it stop being a staff party to which subbies are invited and start being 'entertaining' which employees are hosting for their guests?

groundy

Its not solely a staff party if wives/husbands and subbies are invited and therefore there is an element of entertaining which would be dissallowable.

villapb

Sounds like he wants the cake and to eat it lol............

Monsoon

I still maintain that the cost of the party for the employees is allowable and not a BIK.

It's still a party and the subbie is essentially staff in a different way, so I don't think client entertaining comes into it... which is a moot point because the non employees costs are disallowable anyway.

stevo5678

Monsoon wrote: »

It's still a party and the subbie is essentially staff in a different way, so I don't think client entertaining comes into it... which is a moot point because the non employees costs are disallowable anyway.

A subbie is stictly not an employee so yes entertaining does come into it (hence why it is specifically referred to in the HMRC manual below). A subbie is completely different to an employee from every tax and legal perspective going. The only similarity is that they both incur costs.

Does a subbie get holiday, benefits etc? Answer no, if yes then they are not a subbie.

It's fairly straightforward from where I stand. Employee expenses = allowable, non employees = non-allowable (entertaining) unless it is part of the contract - see bottom.

I think the rules are quite clear on this.

In some instances where subsistence costs are part of the contract then it may be allowable (see below) but a barbecue not in the course of work (and not in the contract of services) is hardly the intention of this exception.

BIM45045

Specific deductions: entertainment: meals provided for non-employees
Circumstances where the costs are allowable
In practice the cost to a trader of ordinary subsistence for people directly involved in the trader’s business is an allowable expense, although such people may not be employees. There must be a direct link with services provided, so that the business entertainment is given pursuant to a legal obligation and in return for which a proper and sufficient quid pro quo is obtained, and the food and drink must not be excessive.

The legislation refers to “employees” and defines this term so that it includes, in relation to a company, a director of the company and a person engaged in the management of the company. This means that the exemption (from the normal disallowance for hospitality - see BIM45033) for staff entertaining does not apply to the employees of any other person, even though they may work exclusively for the trader. It is increasingly common for work to be outsourced so that people who would once have been employed directly by a business are now subcontracted to the business from an outside supplier of labour (perhaps another company, a self-employed sub-contractor or ‘IR35’ company). This is often the case with cleaners, security staff or information technology specialists.

However, if the contract with the outside labour supplier specifies that the workers be provided with subsistence during the working day, or with the use of a staff canteen, then the costs incurred are not disallowed by the legislation. Similarly, meals given to a self-employed person contracted for a particular piece of work may be regarded as part of the cost of that contract.

The cost of subsistence provided for other people directly involved in the conduct of the business are also not disallowed by the legislation. Examples of this include security people attending a rugby match (as their attendance is necessary for safety purposes) or jockeys at a race meeting (without whom the racecourse would be unable to conduct its business). However, the cost of refreshments for journalists attending the same events would be disallowed under the legislation, as there is not the same direct link between their presence and the business.