Understanding Business Expenses and HMRC’s Rules
HMRC only allows business expenses that are "wholly, exclusively, and necessarily" for business purposes. This means that if you’re claiming an expense, it must be essential to your work and not have a personal element.
Lunch Expenses for Sole Traders
For sole traders, meals are generally considered personal expenses and are therefore not deductible. However, there are specific situations in which meals can qualify as a legitimate business expense.
1. Travel and Subsistence: Claiming Lunch While Away from Your Usual Place of Business
If you travel as part of your business, you may claim meals as part of your travel and subsistence expenses. For sole traders, HMRC allows meal expenses when you are:
Away from your usual place of work: If your work requires you to travel to a different location and it isn’t a routine trip, you can claim the cost of food and drink.
On an overnight business trip: You can claim reasonable costs for all meals during the trip, including breakfast, lunch, and dinner.
Example: If you’re an electrician and need to drive to a client two hours away, you can claim a reasonable amount for lunch while on that job, as it’s necessary for your work.
2. Client Meetings and Entertaining
For sole traders, meals with clients, suppliers, or potential clients are generally not deductible as business expenses. HMRC treats these as “entertaining” expenses, which are considered personal and non-deductible for tax purposes. This rule applies even if the meal has a direct business purpose.
3. Regular Meals While Working Locally
Daily meals taken at or near your usual place of business are considered personal expenses. For instance, if you work from home or have a small office, lunch breaks are not deductible, as HMRC considers this a regular personal cost.
In summary: Sole traders can only claim food expenses when they are traveling for business or on an overnight trip.
Lunch Expenses for Limited Companies
For limited companies, the rules differ because the company is a separate legal entity. However, HMRC still imposes strict conditions around claiming meals as business expenses. Let’s examine the scenarios in which meal costs are deductible for limited companies.
1. Travel and Subsistence: Claiming Lunch for Business Trips
Similar to sole traders, directors or employees of a limited company can claim meals when travelling for business purposes. This includes:
Business trips: If an employee or director is required to travel for work, meals taken during this time can be claimed as a business expense.
Overnight stays: When a business trip involves an overnight stay, reasonable food and drink costs are deductible for the duration of the trip.
Example: If a limited company director travels to a conference for three days, the costs of meals for those three days can be reimbursed and claimed as a business expense.
2. Client Entertainment and Business Meals
Unlike sole traders, limited companies may pay for client meals under certain conditions. However, these meals fall under "entertaining," which HMRC deems non-deductible. This means that while the company can pay for the client’s meal, the cost isn’t tax-deductible. Additionally, VAT on entertaining expenses for non-employees can’t be reclaimed.
Note: Entertaining employees is subject to different rules and can sometimes be tax-deductible (e.g., annual staff events within HMRC’s specified limits).
3. Everyday Lunch for Directors and Employees
For regular meals, like a director or employee’s lunch at their usual place of work, HMRC does not allow these to be claimed as business expenses. This applies even if the individual is eating while working at the office or working from home.
Exception for occasional business lunches: If the meal is part of a business meeting that takes place away from the usual workplace, it might be allowable. However, such cases should be documented carefully, and it’s advisable to seek guidance from an accountant.
In summary: Limited companies can claim meal expenses for employees and directors while on business trips, but regular meals at the usual place of work are non-deductible.
VAT on Business Meals
For VAT-registered businesses, VAT can sometimes be reclaimed on meal expenses:
Travel meals: If the meal is a valid business expense (e.g., travel-related), the business can reclaim VAT.
Client meals: VAT cannot be reclaimed on client entertainment expenses, as these are considered non-deductible.
Important Note: Keep all VAT receipts and document expenses thoroughly for travel-related meals to support your claim if HMRC asks for evidence.
Practical Tips for Claiming Meal Expenses
Document Clearly: Maintain detailed records of all meal expenses. For travel meals, note the purpose of the trip, dates, and any accompanying individuals.
Use a Business Credit Card: Paying with a business card can help simplify tracking and avoid mixing personal and business expenses.
Keep Receipts: Always keep receipts, especially for meals during travel. Receipts are vital if you need to justify the expense to HMRC.
Consult an Accountant: Navigating the nuances of allowable expenses can be tricky, especially with business meals. An accountant can help ensure compliance and identify any areas where tax relief may apply.
Conclusion
While claiming lunch as a business expense is possible, it’s subject to specific HMRC rules, especially depending on whether you operate as a sole trader or a limited company. Generally, meal expenses for regular workdays at or near your usual place of business aren’t deductible. However, meals during business travel can be claimed, provided they meet the criteria set by HMRC.
For most business owners, the takeaway is to approach lunch expenses with caution and to claim only when they directly serve a legitimate business purpose.