There might not be any such thing as a free lunch, but in some circumstances, at least it is a tax deductible. As with most areas of tax, the treatment of meals is heavily dependent on the precise nature and circumstance of expense incurred.
Let’s consider the tax position on the question we are often asked – Is lunch tax deductible?
Subsistence costs refer to living expenses such as meals. Expenses are only tax deductible when they are “wholly and exclusively” incurred for business purposes. Understandably, everyday expenses that are a necessity of living (such as your weekly supermarket shop) do not qualify for tax relief.
What if you pop out of the office at lunchtime to buy a sandwich or stop at the cafe down the road from your house to pick up a coffee first thing in the morning? While you have incurred these expenses en route to or at work, the expenses arose because you needed food (and caffeine) and chose not to bring a packed lunch and flask from home, which you could have done to avoid the extra cost of buying prepared food. The expenses have arisen due to your personal preference rather than a necessity caused by your business and are therefore not tax deductible.
The occasions when you might be able to claim food costs are when you are travelling for business. The general rule is that subsistence costs are claimable if:-
- You are an itinerant worker, which means the nature of your job requires you to travel to different work locations
- The travel concerned is in respect of occasionally visited locations and is not part of your normal pattern of travel, or due to the nature of your work you simply do not have a normal pattern of travel.
You could not be expected to plan to bring meals from home if you are travelling for extended periods of time, due to impracticalities such as food storage. This is particularly true of overnight stays. These circumstances result in the costly but necessary outcome of buying your meals rather than making them. These necessary expenses have been incurred because you are in business and are therefore tax deductible. Rather than attempting to work out the extra costs incurred on food while travelling, the taxpayer is allowed to claim the full cost of meals and drink providing the costs are reasonable.
Company directors (and employees) have some rather more precise rules to follow in respect of travel to temporary work locations, which are locations where you are expecting to work for less than two years or where you will be spending less than 40% of your working time. You may claim for subsistence regarding temporary workplaces. As for sole-traders, reasonable subsistence expenses may be claimed.
“Reasonable” expenses are those which are at a sensible level and are commensurate with the amount of time involved. A one hour round trip to a client, for example, would not typically be adequate to support a lunch claim. Alcohol is permitted when purchased with meals, but again must be reasonable and therefore limited in quantity to just one beer or two glasses of wine.
If you are buying meals for staff or clients, your expenditure falls under the description of “entertainment” for which there are separate tax rules.