Taking a client to lunch: the company can pay, but it won't cut your tax
This is the one most people get wrong, so here it is plainly. Your company can pay to take a client, a customer or a supplier out for lunch, drinks or an event. It's a real cost and the money genuinely leaves the company.
The catch: it doesn't reduce your Corporation Tax. When we work out the tax, that cost gets added back, so the bill stays exactly the same as if you'd never spent it. People expect this one to save tax. It doesn't.
Two ways to think about it, both true:
- The company can pay for entertaining a client.
- It just doesn't lower the tax the company pays.
So "you can't claim it" means "it won't save you tax", not "the company isn't allowed to spend the money". Those are different things, and mixing them up is where the confusion comes from.
What about my own lunch while I'm out working?
Your everyday lunch isn't a business cost, even on a working day. Everyone has to eat, so a sandwich at your normal place of work is treated as a personal cost, the same as it would be at home. You can't put it through the company to cut your tax.
Food does count when you're genuinely travelling for the business, away from your normal workplace, or staying away overnight. A reasonable meal on a real business trip, and the hotel and meals if you stay over, can come off the company's profit. The test is simple: is this an everyday meal you'd have anyway, or an extra cost because the work took you away from your usual base? Only the second one counts.
So what food and drink DOES reduce my tax?
A genuine staff do does. If the company puts on something for its own staff, a team meal, a summer social, a Christmas party, that's allowable, and it does come off the company's profit before tax. This is the opposite of client entertaining.
It has to be real staff entertaining, though, not a client event with an employee tagged along to make it look like a staff do. If it's genuinely for your people, the company gets the deduction.
The £150-a-head bit, and what it's actually for
Here's where two different taxes get muddled, so keep them apart.
The fact that a staff party reduces the company's Corporation Tax has no £150 limit on it. That's the company's side.
The £150 a head is a separate rule about your staff's own tax. Throw an annual event, like a Christmas party, that's open to all your staff and costs £150 a head or less for the year, and your staff pay no tax on it as a perk. Go over £150 a head, even by a little, and the whole cost becomes a taxable perk for them, not just the part above £150.
One thing that trips people up: the £150 is the total cost per head, and it includes VAT plus any extras the company pays for, like transport to the venue or a room for the night. So add up everything the event costs, VAT and all, divide by the number of people who came, and that's the figure that has to stay at £150 or under. It's easy to think you're under £150 on the food alone and then tip over once the VAT and the taxi are counted in.
So: the £150 is the line that keeps the party tax-free for the people who attend. It is not the rule for whether the company saves Corporation Tax. We keep the two straight for you.
How SimpleReturns handles it
Connect your bank or upload a statement, and we sort your food and entertaining costs into the right buckets: client entertaining gets added back so it doesn't wrongly cut your tax, real business-travel meals come off your profit, and a genuine staff do is claimed properly. You see every figure before anything is sent, and you never have to work out which is which.