Not every coffee is the same. Here are the differences in terms of recording expenses.

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Well of course it’s up to you whether you prefer illy or lavazza, Kenyan or Nigerian but that’s not what I mean here. There is a difference in terms of how you account for the coffees you drink in your business expenses (and thus from a tax perspective). We’re not tax accountants and this is not tax advice.  We thought we’d give you a few pointers on the differences so that you can record and track your expenses a little better.

  • Coffees (and other food and beverages) consumed in meetings which are billable time and expensed – if you have an expenses budget agreed with the client then you will be charging these on so you need to add them in to your book-keeping system as an expense and also allocate them to the right client and project. In MyCake you can run projects which are attached to individual clients, allowing expenses to be categories. This means that you’ll keep better track of these expenses and will be less likely to forget them when invoicing
  • Coffees which are during work meetings but are not in billable projects – you should still add these in to your book-keeping system as expenses because you need to know how much you’re spending in order to measure profit. There are rules around what constitutes tax-deductable ‘subsistence’ expenses and although you record all expenses you can’t always deduct the cost from your tax bill
  • Coffees which are just coffees and not really work related – these don’t belong in your business book-keeping system!

If you have employees who are incurring these costs and expensing them back to the company then you should also be giving them clear direction as to what is considered a reasonable business expense!

14 thoughts on “Not every coffee is the same. Here are the differences in terms of recording expenses.

  1. Can you clarify about the 5 mile rule? I understood that you could only count coffees, food etc as subsistence expenses if you were more than 5 miles from home and can only claim for your portion, not the food/drink of the person you are meeting with, even if it’s work related. Is this right? Is there any difference between this for employees/directors of Limited companies vs those who are self-employed?

    I understand you’re not tax experts, but would be interested to know your views if you know the answer.

    Cheers,

    Fiona
    emmersons Ltd
    http://www.emmersonsltd.com

  2. Hi Fiona

    Can you just give me a bit more info so I can help answer your question…

    are you talking about entertaining whehn your staying overnight somewhere or day to day out of the office meetings?

    also are you asking about whether you can claim it through the business or whether it can be included as a cost in terms of the tax calculation?

    Let me know and I will get back to you

    Kirsty Andrew

    infofrankalice@googlemail.com
    http://www.frankalice.com (currently under construction)

    Frank Alice Ltd is run by a chartered accountant with a personal understanding and hands on experience of working with creative industries and individuals. We offer support at whatever level you need. Don’t let finance scare you!

  3. Hi Fiona

    Can you just give me a bit more info so I can help answer your question…

    are you talking about entertaining whehn your staying overnight somewhere or day to day out of the office meetings?

    also are you asking about whether you can claim it through the business or whether it can be included as a cost in terms of the tax calculation?

    Let me know and I will get back to you

    Kirsty Andrew

    infofrankalice@googlemail.com
    http://www.frankalice.com (currently under construction)

    Frank Alice Ltd is run by a chartered accountant with a personal understanding and hands on experience of working with creative industries and individuals. We offer support at whatever level you need. Don’t let finance scare you!

  4. Hi Fiona

    Can you just give me a bit more info so I can help answer your question…

    are you talking about entertaining whehn your staying overnight somewhere or day to day out of the office meetings?

    also are you asking about whether you can claim it through the business or whether it can be included as a cost in terms of the tax calculation?

    Let me know and I will get back to you

    Kirsty Andrew

    infofrankalice@googlemail.com
    http://www.frankalice.com (currently under construction)

    Frank Alice Ltd is run by a chartered accountant with a personal understanding and hands on experience of working with creative industries and individuals. We offer support at whatever level you need. Don’t let finance scare you!

  5. Hi Fiona

    Can you just give me a bit more info so I can help answer your question…

    are you talking about entertaining whehn your staying overnight somewhere or day to day out of the office meetings?

    also are you asking about whether you can claim it through the business or whether it can be included as a cost in terms of the tax calculation?

    Let me know and I will get back to you

    Kirsty Andrew

    infofrankalice@googlemail.com
    http://www.frankalice.com (currently under construction)

    Frank Alice Ltd is run by a chartered accountant with a personal understanding and hands on experience of working with creative industries and individuals. We offer support at whatever level you need. Don’t let finance scare you!

  6. Hi Fiona

    Can you just give me a bit more info so I can help answer your question…

    are you talking about entertaining whehn your staying overnight somewhere or day to day out of the office meetings?

    also are you asking about whether you can claim it through the business or whether it can be included as a cost in terms of the tax calculation?

    Let me know and I will get back to you

    Kirsty Andrew

    infofrankalice@googlemail.com
    http://www.frankalice.com (currently under construction)

    Frank Alice Ltd is run by a chartered accountant with a personal understanding and hands on experience of working with creative industries and individuals. We offer support at whatever level you need. Don’t let finance scare you!

  7. Hi Kirsty,
    Thanks for your response.

    My main questions related to food/drink expenses incurred during day-to-day business meetings and for me when staying away from home overnight. I thought that entertaining clients had now been pretty much done away with in terms of a claimable business expense?

    I have to claim a bit of ignorance here regarding your last question about whether it’s a claimable business expense (which was my initial question) or whether it can be included as a cost in terms of the tax calculation – I’m not entirely sure what this means and what the difference is!

    Looking forward to learning more,

    Fiona

  8. Hi Fiona

    Don’t worry, accounting, tax etc can all be a bit of a minefield!

    Basically in terms of can you claim entertaining clients through your business, e.g. taking a contact for coffee, or dinner, yes you can.

    BUT when you come to complete your tax return and you have to list / include all the costs relating to the business, including rent, salaries etc., when you get to “expenses” you CANNOT include entertaining of clients.

    The difference being that these costs are a valid expense to the business BUT they can’t be included when calculating how much tax you pay.

    I am hoping this makes sense, but here’s a small example:

    1. Your business P&L
    Income 100
    salary (50)
    ents (10)
    profit
    before tax 40

    2. NOW to work out tax
    income 100
    salary (50)
    taxable
    profit 50
    ~ tax (11)

    3. So final business account:
    Income 100
    salary (50)
    ents (10)
    profit 40
    before tax
    tax (11)
    profit 29
    after tax

    In terms of what can you claim when staying away from home, again if it is a valid essential business requirement then it can be classed as a business expense in calculation 1/3 BUT the amount you can include in the tax calculation (2) is limited to a specific allowance. There is also a travel allowance (industry specific) which depends on distance and is zero below 5 miles.

    Due to the mass of rules and regulations it is always tricky to note this in a super easily understandable way. If you need any more assistance please see my contact details below.

    Kirsty

    http://www.frankalice.com

  9. Hi Fiona

    Don’t worry, accounting, tax etc can all be a bit of a minefield!

    Basically in terms of can you claim entertaining clients through your business, e.g. taking a contact for coffee, or dinner, yes you can.

    BUT when you come to complete your tax return and you have to list / include all the costs relating to the business, including rent, salaries etc., when you get to “expenses” you CANNOT include entertaining of clients.

    The difference being that these costs are a valid expense to the business BUT they can’t be included when calculating how much tax you pay.

    I am hoping this makes sense, but here’s a small example:

    1. Your business P&L
    Income 100
    salary (50)
    ents (10)
    profit
    before tax 40

    2. NOW to work out tax
    income 100
    salary (50)
    taxable
    profit 50
    ~ tax (11)

    3. So final business account:
    Income 100
    salary (50)
    ents (10)
    profit 40
    before tax
    tax (11)
    profit 29
    after tax

    In terms of what can you claim when staying away from home, again if it is a valid essential business requirement then it can be classed as a business expense in calculation 1/3 BUT the amount you can include in the tax calculation (2) is limited to a specific allowance. There is also a travel allowance (industry specific) which depends on distance and is zero below 5 miles.

    Due to the mass of rules and regulations it is always tricky to note this in a super easily understandable way. If you need any more assistance please see my contact details below.

    Kirsty

    http://www.frankalice.com

  10. Hi Fiona

    Don’t worry, accounting, tax etc can all be a bit of a minefield!

    Basically in terms of can you claim entertaining clients through your business, e.g. taking a contact for coffee, or dinner, yes you can.

    BUT when you come to complete your tax return and you have to list / include all the costs relating to the business, including rent, salaries etc., when you get to “expenses” you CANNOT include entertaining of clients.

    The difference being that these costs are a valid expense to the business BUT they can’t be included when calculating how much tax you pay.

    I am hoping this makes sense, but here’s a small example:

    1. Your business P&L
    Income 100
    salary (50)
    ents (10)
    profit
    before tax 40

    2. NOW to work out tax
    income 100
    salary (50)
    taxable
    profit 50
    ~ tax (11)

    3. So final business account:
    Income 100
    salary (50)
    ents (10)
    profit 40
    before tax
    tax (11)
    profit 29
    after tax

    In terms of what can you claim when staying away from home, again if it is a valid essential business requirement then it can be classed as a business expense in calculation 1/3 BUT the amount you can include in the tax calculation (2) is limited to a specific allowance. There is also a travel allowance (industry specific) which depends on distance and is zero below 5 miles.

    Due to the mass of rules and regulations it is always tricky to note this in a super easily understandable way. If you need any more assistance please see my contact details below.

    Kirsty

    http://www.frankalice.com

  11. Hi Fiona

    Don’t worry, accounting, tax etc can all be a bit of a minefield!

    Basically in terms of can you claim entertaining clients through your business, e.g. taking a contact for coffee, or dinner, yes you can.

    BUT when you come to complete your tax return and you have to list / include all the costs relating to the business, including rent, salaries etc., when you get to “expenses” you CANNOT include entertaining of clients.

    The difference being that these costs are a valid expense to the business BUT they can’t be included when calculating how much tax you pay.

    I am hoping this makes sense, but here’s a small example:

    1. Your business P&L
    Income 100
    salary (50)
    ents (10)
    profit
    before tax 40

    2. NOW to work out tax
    income 100
    salary (50)
    taxable
    profit 50
    ~ tax (11)

    3. So final business account:
    Income 100
    salary (50)
    ents (10)
    profit 40
    before tax
    tax (11)
    profit 29
    after tax

    In terms of what can you claim when staying away from home, again if it is a valid essential business requirement then it can be classed as a business expense in calculation 1/3 BUT the amount you can include in the tax calculation (2) is limited to a specific allowance. There is also a travel allowance (industry specific) which depends on distance and is zero below 5 miles.

    Due to the mass of rules and regulations it is always tricky to note this in a super easily understandable way. If you need any more assistance please see my contact details below.

    Kirsty

    http://www.frankalice.com

  12. Hi Fiona

    Don’t worry, accounting, tax etc can all be a bit of a minefield!

    Basically in terms of can you claim entertaining clients through your business, e.g. taking a contact for coffee, or dinner, yes you can.

    BUT when you come to complete your tax return and you have to list / include all the costs relating to the business, including rent, salaries etc., when you get to “expenses” you CANNOT include entertaining of clients.

    The difference being that these costs are a valid expense to the business BUT they can’t be included when calculating how much tax you pay.

    I am hoping this makes sense, but here’s a small example:

    1. Your business P&L
    Income 100
    salary (50)
    ents (10)
    profit
    before tax 40

    2. NOW to work out tax
    income 100
    salary (50)
    taxable
    profit 50
    ~ tax (11)

    3. So final business account:
    Income 100
    salary (50)
    ents (10)
    profit 40
    before tax
    tax (11)
    profit 29
    after tax

    In terms of what can you claim when staying away from home, again if it is a valid essential business requirement then it can be classed as a business expense in calculation 1/3 BUT the amount you can include in the tax calculation (2) is limited to a specific allowance. There is also a travel allowance (industry specific) which depends on distance and is zero below 5 miles.

    Due to the mass of rules and regulations it is always tricky to note this in a super easily understandable way. If you need any more assistance please see my contact details below.

    Kirsty

    http://www.frankalice.com

  13. What about if you go out on a materials buying journey and pick up a sandwich and coffee on the way? E.g. I leave East London and journey across to Shepherds Bush to the fabric shops on Goldhawke Road. I get fabric for a specific project, or for my own stock, and pick up a coffee whilst I’m there.

  14. Claire, two questions: where is your registered address? how far is it from there to the location you travelled to? If the distance between the two is more than 5 miles then it is reasonable to say that this is not a ‘home’ coffee but a ‘on travel’ coffee and thus expensable. It also matters that you are reasonable about these things … if your subsistence costs are very high vs. turnover of the business eyebrows will be raised by the tax man. Best not to do that!

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