Business meetings are an integral part of running a business. In many cases, this form of negotiating cooperation cannot be avoided. It is the most fruitful and strengthens business ties, which are extremely important for maintaining business. Often, these meetings are organized to generate revenue, which means that catering services (purchase of food and drinks) may be included in the tax-deductible costs. However, much depends on the intention and purpose of the gathering. Is the cost of catering services inconsistent with tax law? What does it look like in practice and what criteria must be met for representation expenses to be deducted?
Catering service costs – what are the costs of obtaining income?
Revenue-deductible costs are all expenses that are necessary to achieve, maintain or secure a source of revenue. These may be costs related to running a business, gainful employment or other sources of income.
In the tax context, tax-deductible costs are deducted from pre-tax income, which reduces the tax base and leads to a lower tax liability. What can be classified as tax-deductible costs? These are among others:
- employee remuneration,
- materials and raw materials,
- service fees,
- rental or lease costs,
- Bank charges,
- advertising and marketing fees,
- vocational training expenses,
- business trip costs,
- depreciation of fixed assets,
- insurance fees.
Many entrepreneurs also wonder whether the costs of obtaining income include, for example, a business meeting in a restaurant - after all, these are also expenses incurred to obtain income. The Personal Income Tax Act contains information according to which representation costs are not classified as tax-deductible costs. This causes a lot of consternation, because business meetings are not only focused on building an image, but also on discussing specific contracts or business activities that translate into real profits. So, what exactly – in the context of food and beverage expenses – do the tax authorities consider tax-deductible and what not?
Business meeting and tax-deductible costs – can it be deducted?
Deciding to organize a business meeting often involves incurring certain costs to discuss the details of the contract or agree on the terms of cooperation, which ultimately translate into real profits of the concluded contracts. A question that often arises in the context of such expenses concerns the possibility of deducting them as tax-deductible costs - after all, it is difficult to consider such meetings only as investments in a positive image. In such cases, in accordance with tax law, these costs may be deducted, provided they meet certain criteria. First of all, they must be incurred in order to generate income or maintain a source of income. Moreover, they must be documented and rational.
It is important to remember that not all business meeting expenses can be deducted. For example, costs related to organizing team-building events for employees are perceived by law as not being tax-deductible costs. In this case, we are talking about representation costs, in particular incurred for the purchase of food or beverages (including alcoholic beverages). On the other hand, expenses related to organizing conferences or training for employees aimed at improving their qualifications and work efficiency may be deducted. Therefore, it is always worth consulting such expenses with an accounting office - the entrepreneur can then be sure that the costs of the catering service have been correctly accounted for.
Catering service costs – what does it involve?
Business meetings sometimes take place during lunch time or last several hours. Some entrepreneurs have days when they have several such meetings in a row. Therefore, to make work easier and manage time better, such meetings take place in a restaurant or catering is simply ordered to the company's headquarters. Sometimes we can include these expenses in tax-deductible costs, but we must remember a few important rules.
- Invoice – the invoice for food in a restaurant should be described in detail, only then it can be classified as an expense incurred to obtain income.
- Relationship with activity – the expense for a catering service must be directly related to the business activity.
However, it should be borne in mind that deduction of tax-deductible costs is only possible if we meet all the above conditions.
Catering service and costs – what does it look like in practice?
Financial aspects are important when planning a business meeting. Catering service is an integral part of such a meeting, and its costs may constitute a significant part of the budget. And although a one-time dinner with a partner or contractor may not be burdensome, if there are several such meetings a week, the amounts are much higher. It is precisely for such situations that regulations have been created that allow for the deduction of such costs.
For example, if a business meeting is aimed at establishing new business contacts that may bring profits to the company, the costs related to the catering service may be included in the tax deductible costs. However, it is worth remembering that the decision to include these finances in tax-deductible costs should be supported by appropriate documentationsuch as invoices, bills or contracts.
Business dinner included - individual interpretation
The Income Tax Act and its interpretation clearly emphasize that each case must be considered individually. The regulations cannot provide for all possibilities in this matter. Much depends on the circumstances justifying the expenditure on food or beverages. In fact, the price of meals or the place where catering services are provided are not important - what matters is the purpose of such a meeting.
However, individual interpretation does not involve complete freedom. It is necessary to justify your decision to deduct the costs of catering services and provide evidence of the actual purpose of such a meeting. It may therefore happen that two practically analogous situations will be considered differently by the tax authorities, because at one meeting significant contracts were signed, and at the other the contractors were only discussing the shape of their future (possible) cooperation.
Dinner with a client and costs – how to settle?
Business meetings over lunch are part of the daily work of many entrepreneurs. The basic question that arises is how to properly settle such expenses? As we mentioned above, in accordance with tax law, costs related to organizing business meetings may be included in tax deductible costs. However, it is important to remember a few rules related to documentation.
First, always keep your receipts and invoices. This is the basic document that will confirm that the expense has actually been incurred. Secondly, the invoice should include information about the place and purpose of the meeting, as well as about the participants. Finally, remember that not all expenses related to lunch with a client may be tax deductible. For example, alcohol costs are not considered tax costs.
- Can the cost of a business dinner be deducted from the tax base?
According to the regulations, expenses incurred on food and drinks during a business meeting can be deducted from tax-deductible costs, but each case must be approached individually, because a lot depends on the purpose of the meeting and its actual course.
- What documents are necessary to settle the catering service during a business meeting?
In order to be able to settle the catering service, it is necessary to ensure that you receive a precisely described invoice, which includes, among other things, the number of participants in the meeting and its purpose.
- When cannot a catering service be deducted from tax?
Pursuant to the provisions of the Income Tax Act, entrepreneurs cannot deduct expenses incurred for creating an image and building positive relationships, i.e. the so-called representation costs.