Is a dinner with a potential client a deductible expense? What about if you decide to give a present to your employees for Christmas or other holidays, or you host a company dinner at the end of your work season?
These are some of those types of expenses that fall in the gray area. The main problem with them is that they offer a great opportunity for cheaters to deduct a considerable amount of doubtful expenses.
In these cases, what does the law say and what are some measures that will ensure that your legitimate expenses are not contested?
What the law says on the matter.
The Law of Corporation Tax, allows to deduct as expenses the “acquisitions of gifts to clients or suppliers with a limit of 1% the turn-over”.
In this way, if you have turn-over of 50,000€ in 2017, your deductible expense as gifts and special attention to clients is 500€.
The challenge is, though, proving that the invoice of that sizable dinner is actually related to one of those concepts.
Who needs to prove it
When these situations are taken to the courts, they clearly rule that it is the responsibility of the company or business to prove that these expenses fall under the previous mentioned categories.
It is not sufficient simply to present the invoice of the restaurant in order to have the expense offset. Of course, at the time of accounting for the invoices and submitting your results hardly anybody is going to object to that (possibly your accountant will advise you not to do it without proper justification).
However, if you ever confront a tax inspection these are going to be the first invoices to go out of your books!. Remember, that when an expense is removed from your calculation, you do not only have to pay the difference in the resulting tax liability, but you also are going to be fined for cheating the tax-man!.
How can you prove it
Of course, there is no a single strategy that you have to follow. However, the idea is providing as much information as possible along with the invoice to help match the expense with the resulting sale or service.
1.If you are having a dinner with a potential client prior to closing a deal or sale, ask the restaurant to note down on the invoice the name of your client. That information, along with the date of the invoice, shortly followed by the contract or your own invoice to your client will connect the two events.
2.If you are having a dinner with a regular client that you visit periodically in another town, the above-mentioned information will surely be complemented with some travel expenses to that town.
3.Your dinners will always be on working days.
Likewise, if you decide to give a gift to some of your good clients, make sure that you are able to justify the expense. maybe you can attach to the invoice a copy of the official company’s letter (or gift card) in which you address the client mentioning your gift to him for being a great client.
These measures do not guarantee that the tax inspector will not have any doubt but will increase your likelihood of success in proving your case.