I posted a general video on what expenses are deductible for tax purposes which you can find here. However, claiming a tax deduction on food and entertaining is a specific area which has come up again and again. Most small businesses owners don’t realise that food and entertaining are not tax deductible expenses. Revenue have specifically excluded it. Here is a link to the Revenue tax manual addressing this point.
It is worth pointing out that money spent on food and entertaining is part of your business expenses and should be included in your accounting profit for your own information but it is not tax deductible.
Food as a tax deductible expense
The general principle with deducting expenses in your business is that the expense should be wholly and exclusively for the purposes of the trade. This means expenses should only for business purposes. This is clearly the case when buying stock for resale, paying for graphic design, marketing or accounting expenses etc. Food is different. Revenue takes the stance that people eat to live and not to work. Therefore, money spent on food in the course of business activity is dual purpose. In the scenario where a business owner must eat out on account of being away from home, the expenses incurred are still dual purpose and not an allowable deduction.
Exception – expenses incurred on food relating to a hotel stay
There is one exception to this rule! Where a business owner has gone on an overnight business trip and pays for food, then both the food and accommodation can be deducted for tax purposes. The trip cannot have any personal motive. The expense claimed for accommodation and food must be reasonable amounts. Where the accommodation is allowable, then so is the food. Hotel stays which have any element of a personal motive must not be allowable for tax purposes. An overnight stay for a tradeshow is an allowable expense once the accommodation and food are a reasonable amount. If it is more cost effective to stay an extra night and, return on a flight the following day, then this can still be tax deductible as the extra night is incidental. However, if the business owner stays an extra night to allow for sightseeing the next day, the whole amount of the trip must be excluded for tax purposes as it is seen as having a personal motive to the trip.
Client entertainment – tax deductible?
This leads to a further question around client entertainment; where a business owner incurs a genuine business expense while networking or on client entertainment. This is also deemed dual purpose, so is not allowable for tax purposes. This would include bringing a client out for coffee or a meal. On the surface this is a legitimate business expense but unfortunately not deductible for tax purposes.
Disclaimer: This post does not constitute financial advice and is for information and educational purposes only. This blog does not constitute an accountant/client relationship.