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Dear Tutor,
Once again thank you so much for the lectures, I wouldn’t be able to pass the exams while working full time without them!I have a question on an exercice I did in my exercice bank on employment income.
The following information was written:
a) “James was paid a round sum expense allowance of £2000 out of which he paid £800 on entertaining customers and £550 on business travel by air or train”
Answer regarding this point was: No relief is given to James for entertaining expense paid out of a round sum allowance because the employee, not the employer, has borne the cost.
=> My question: why the difference of treatment between entertaining customers and travel?b) “James took meals in the fully subsidized executive canteen, the cost of the year being £135. Another subsidized canteen was available for the other staff.”
Answer: Use of canteen is a tax exempt benefit.
=> My question: If the canteen is not available to ALL staff (only executive), can we consider it as tax exempt? (My thoughts are that the criteria is about the AVAILABILITY of the canteen and that if A canteen is available to all staff, it is exempt, even if it is a different one).Thank you very much in advance for your help,
Best regards
AnneHi Anne
Let’s deal with your second query first – For the exemption to apply provision must indeed be made for ALL employees – but this may be in different canteens.
The answer to your first query is of course correct and the treatment is due to the difference in treatment of the employer and the employee – remember that in the adjustment of business profits, entertaining expenses incurred by the business are disallowed and added back to the business profit but when a “round sum” allowance is paid to an employee this is treated as an employment cost to the business and is allowed. If therefore a part of this is then incurred by the employee on entertaining this will be asessable on the employee as without this rule the employer would effectively get tax relief for the entertaining expenses incurred.
If the employer reimbursed the employee for entertaining expenses incurred personally by the employee on behalf of the business – this expense would be treated as entertaining in the accounts of the business – not an employment cost and would be added back in the adjustment of business profit. This would not therefore then be taxed on the employee as the business had not been given tax relief on this amount.
Hope this helps!
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