Everyone needs food to survive. Whether you are an employee or self-employed, in either case, you will have lunches and dinners while at work. Sometimes you will even spend on meals during a business trip. Food is a basic human need, and thinking that you could claim your lunch as a business expense sounds a bit unnatural. However, it is possible, and many people who are aware claim it.
You should keep in mind that the rules that apply to self-employed and employees are different. There are detailed rules for both, and we will be talking about each separately.
Let’s see what you can claim and when as well as how you can go about it.
If you are self-employed and pay taxes, you are entitled to deduct certain expenses that other employees can’t. Meal expense is one of them. If you take a good look at this and understand what counts as claimable and whatnot, you can decrease your tax and increase your disposable income.
For a long time, self-employed people weren’t allowed to claim this expense. However, HMRC has changed this and made it possible.
Answering the WHAT and WHEN
What is essential to know is what and when you can claim the lunch expense through your business. You can claim the cost of your meal while you are on a business trip as well. However, certain general conditions for this need to be met.
- The business that you do requires a nomadic lifestyle. For instance, commercial travellers can claim their meals as a business expense since they are doing business while travelling.
- The business trip that you make is not regular for your field. For instance, if you are a real estate agent and deal in a particular area. The trip you make to Australia for a business conference won’t be a part of your usual routine, and so the meals taken can be claimed.
- You need to stay overnight if you want to claim the accommodation as well as meal expenses. This is only in the case where you are on a business trip and have to stay overnight.
- If you want to claim a meal while not travelling, then HMRC requires another member of the business to be present.
However, you need to keep in mind that you cannot spend a month in a foreign country with your spouse and claim the meal expense just because you spent an hour in a meeting for business. HMRC has made some rules for it. They require meals to be ordinary and necessary. It can’t be that you add your luxuries or entertainment to it. Moreover, HMRC has made way for other self-employed people as well; for example, a lorry driver having to go on long routes can claim the expenses for meals.
Keep all these in mind, and the fact that HMRC will strictly look into your receipts and any luxury won’t be allowed to claim. Only the necessary things that are also ordinary will be accounted for by them.
Answering the HOW
To calculate your business meal expense, all you need is a calculator and the meal receipts. To start with, gather all of your meal receipts for the tax year. Then, divide the receipts into two separate categories. The two categories can be named as
1. Meal receipts while you were away from home or travelling.
2. Meal receipts while you weren’t travelling (which includes all the business meals you ate).
Now you move onto adding the receipts for meals while you were not travelling. Once this is done, you have two options to choose from for meals while travelling. You can either get the standard meal deduction cost or the actual cost deduction. If you choose the standard deduction method, then you will use a daily rate set by the IRS. If you choose the actual cost method, then you simply add up all the receipts of meals you had while travelling. Once you have calculated costs for both categories, add them up. When you have to total for both categories, multiply it by .5, and you will have the amount that can you claim as a business expense.
Usually, employees are given many fringe benefits such as company’s car, gym membership, etc. and the meals are accounted for tax. However, there are a few exceptions with meals as well.
Answering the WHEN and WHAT
According to HMRC rules, the meals provided to an employee by the employer are not tax-deductible for the employee. However, they are 100% deductible by the employer. There are two major conditions for this: the meals have to be provided on the employer’s business premises and that the meals are provided so that it is convenient for the employer.
What’s great about it is that if more than 50% of the employees satisfy both requirements, separately and together, all the meals that you provide to employees can be treated as provided for the employer’s convenience.
There are some special cases, as well. In a situation where the employees work past their working hours, the meals provided can be claimed. Moreover, you cannot claim for the meals provided if the employee was on leave. Furthermore, if the employer is a restaurant owner, then all the meals provided to the waiter or waitress during their working hours can be claimed. Also, if you go out for lunch with the staff and invite friends and family over, the meals for friends and family cannot be claimed for.
Answering the HOW
So, all the office snacks and meals, as well as meals on a company party, can be claimed. You can calculate these expenses in the same way as for self-employed. You will need the meal receipts and a calculator. Add all of the receipts together and see HMRC rules on how to make a further calculation using the IRS rate or otherwise.
Business lunches with clients
Business lunches with clients cannot be claimed. As simple as that. HMRC has a condition that isn’t fulfilled when you take out a client for lunch for business purpose. Your business can and on many occasions will pay for lunch, but when you file for tax at the end of the year, you can’t add this receipt to the receipts you are claiming expenses for.
Business lunches with staff
HMRC has rules for this too. You cannot claim the meal expenses that the staff has during the normal working routine. However, if it is a once in a blue moon meal with an employee to dice a business project or any other work-related things, then it can be claimed. Similarly, if the lunch is with a group of employees to discuss any sort of business project, the meal expenses can be claimed. Moreover, if you are travelling on a business trip and decide to take an employee alongside, the meals for you as well as the employee are claimable expenses as they will be outside your normal working conditions.
The difference and similarities between Self-employed and employee
The major difference between the two is that in one you only have to worry about yourself and in the other, you have to look after staff meals as well. Other than this, it is HMRC that states different rules for both. Their ratios and percentages differ, and they have strict rules and conditions that need to be followed. For example, in the case of employees, they need to be on the employer’s business premises. On the other hand, being self-employed has no such requirement because wherever you are, you need no one’s supervision.
The major similarity between the two is that HMRC requires, in both cases, the meals to be ordinary and necessary and during the working hours. Other normal meals are dismissed and not accounted for.
Having meals at work is something that no one can skip. People eat on a daily basis for survival. So, why not make some effort and save some of those tax deductions from your hard-earned money? It seems unnatural but it is true. You can save a lot in small amounts, but by the end of the tax year, the amount can be big. Added with other expenses that you can claim as a sole trader or employee, it can make up a lot of saved tax money that you can use for other important stuff.