Question:

“I am a freelancer operating through a Limited company and I sometimes have coffee and lunch meetings with subcontractors who work with me. Are these allowable business expenses and are they tax deductible?”

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Answer:

Having subcontractors working for you can have many benefits with regard to flexible working relationships and tax savings. Unfortunately one of the downsides is that subsistence costs for this type of worker is not allowable as a corporation tax deduction for your limited company. This is because subcontractors are not employees and any entertaining of them is classed as “client entertaining”.

These expenses should be shown as client entertaining in the accounts of the company and should be paid for from company monies but simply disallowed for corporation tax purposes – so to answer your question, Yes – they are a legitimate business expense, but No – they are not tax deductible.

On a related note it is very important when working with subcontractors to ensure that there aren’t any potential employment status issues – if you were to account for these meal costs as “staff entertaining” it could give HMRC an angle to argue that you are treating the subcontractors as employees which could bring with it serious tax and national insurance consequences.