Electronic expense systems - subsistence, entertaining and staff entertaining

06 February 2017

Electronic expense systems have a number of significant advantages over paper systems, which has been seen over recent years by employers.

It is important when using expense systems, to ensure it is possible to identify the nature of the specific expense and that the costs concerned get correctly coded. In recent times, an increase in problems of this nature identified at the time of an employer compliance visit by HMRC. Getting it wrong can be costly and may have implications for employment tax, VAT and corporate tax.

A main issue which we see creating problems is knowing the correct difference between subsistence, entertaining and staff entertaining. Many companies do not distinguish these in their expenses and it is left to those posting the item into the employer’s accounting system to take the decision regarding the precise nature of the costs.

Subsistence is an expense incurred by an employee when they are away from their normal base of employment. This would cover the costs of things such as food, drink and accommodation. HMRC consider that subsistence costs are not free of tax unless the particular employee is away from their normal “employment base” for a period in excess of five hours.

An entertainment expense is the cost of taking a third party out, while staff entertainment is the cost incurred in doing the same but with a fellow employee.

For example, if an employee travels from their normal place of work in London to Reading and takes their client to lunch then you need to consider whether the purpose of the journey was the lunch. If it was, then all the costs of the journey together with the meal would be considered entertaining. However, if the purpose to visit the client was for a meeting, following which that client was invited to go to lunch, then the travel and related costs are travel and subsistence, but the meal costs are entertaining.

This can all be very confusing, therefore it is advisable to take some time to look at your expenses process and make sure there is a clear splitting of these costs into their appropriate categories. With any luck this will stop any problems at the time of an HMRC review. Clear guidance to staff is much better than no guidance.

Contact us 

If you would like a consultation to discuss how this could impact you or your business please contact Brendan Sharkey, speak to your local MHA MacIntyre Hudson advisor or send enquiry.

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