As most of us know, what matters to the tax man (and more importantly the underlying tax rules) is the taxpayer's objective when incurring costs. Were these incurred for business purposes? Is there a specific rule that denies tax relief (eg: as there is for entertaining expenditure)?
Someone who is an employee probably won't be able to claim tax relief for networking related costs that come out of their own pocket. In most cases they'll be fine though as their employer will reimburse them. This is as important for directors of their own Limited companies as it is for all the business expenses they pay for personally (in error?).
The self employed (and the limited companies that pay or reimburse networking costs) can generally claim tax relief for the costs of attending and of getting to and from business networking events. The test is whether the expenses were incurred "Wholly and exclusively" for business purposes.
Even if someone enjoys networking (and some of us do) this does not disqualify the related costs. Tax relief is still available if the costs satisfy the tests above. So what matters is whether attendance is driven by a desire to build relationships and advocates that could lead directly to new work or introductions to prospective new clients? Invariably these are the primary purposes. And they are evidently directly related to increasing the level of business. Networking is just another form of business development; it's a marketing cost; face to face business promotion and advertising. And as such it's tax deductible.
The water can get muddied if the promoter effectively downgrades the Networking element of the event and focuses on the provision of free food and drink. And of course the retention of related receipts (and maybe even the promo material) would form part of the necessary record keeping to support valid claims for tax relief.
I'd welcome comments on this blog post especially from accountants who have advised on this topic and where they draw the line.
Mark, this is very useful. Thank you.
ReplyDeleteGetting down to nuts and bolts:-
* Mileage/travel: tax relief.
* Invoice for networking event: tax relief as long as it doesn't just look like a bill for entertainment.
* Bar bill at networking event: no relief as presumably it's entertainment??
But what about 'subsistence'? Go to a networking event, say, in another town and the company should reimburse, say, the lunch or evening meal and claim tax relief? So maybe a percentage of that bar bill attracts tax relief?
Or is that all as grey as a Cistercian robe?
My FD believes our 'hospitality' budget is too high. But a not- insubstantial portion of that is food and drink for employees, not guests/clients. Surely that is kosher and attractive of tax relief?
Well, Mark, of course networking expenses are allowable generally, because they relate to marketing. I expect to see receipts but I apply the same criteria to my clients as I apply to myself:
ReplyDelete1.What is the main purpose of attending? If to find new business connections then all expenses are allowable.
2.If I meet the networking group for Christmas lunch, the main purpose of which is having a meal with people I already know and is basically for the purpose of pleasure, then I do not claim at all; if I think that I will truly have the opportunity to learn about others' businesses and perhaps even mention my own over lunch then that might will be deductible. The intention is the key.
Let us not feel guilty about enjoying networking. I enjoy my work too, but that does not mean I have to disallow all my expenses incurred.
If I think I am networking then claiming expenses are fine. I do not claim sit-down lunches with the Chamber of Commerce because most of the attendees are retired and look at the events as a monthly lunch club. Hang on, I have stopped going to those. I wonder why?