Consulting (Ltd co) expense claims

[MarkusB]

I'm a consultant operating as a Ltd company. The duration of most engagements is in terms of hours/days/weeks and so there's lots of biz dev costs to find next client (meals, overnight trips, small gifts, etc.)

Is there any kind of accepted unofficial threshold (as a % annual revenue) for this type of BD that HMRC recognises?
If challenged by revenue, what evidence would I need to provide in addition to receipts? It's easy to justify expenses that lead to paid engagements but that's not always the case.
How do others handle this scenario?

Looking for any guidance and opinions before I discuss this with my accountant.

TIA

[Andy Hallett]

Reasonable and justifiable expenses are fine. If you are going to Las Vegas twice a month to do BD you might want to be careful.

[WTFH]

Based on your previous questions, there's a few things to note:
1. Depending on the industry you are approaching, gifts on any size might not be allowed.
2. Is it reasonable? e.g. driving to London with your partner on a Friday to stay at the Ritz for the weekend on the off-chance that you might bump into a client, that wouldn't be considered reasonable. Arranging to meet a prospective client at a trade show, on the other hand, that would be reasonable.
3. Has your company been prudent with its money in the 6 weeks it's been trading, i.e. have you left some in to cover these expenses, along with CT, VAT, etc, or have you taken every penny out?

[Andy2022]

If you can reasonably justify the meals, hotels etc as a business expense you should be fine but you probably want to stay in bog standard hotels, and remember that business entertaining isn’t deductible for tax purposes.

Reasonable means different things in different contexts… I’ve flown to Hawaii to meet a client I was already working for and I could justify business class as I needed to work when I got there

[MarkusB]

Thanks. There are no issues at all on 1 & 3.

2. Is it reasonable? e.g. driving to London with your partner on a Friday to stay at the Ritz for the weekend on the off-chance that you might bump into a client, that wouldn't be considered reasonable. Arranging to meet a prospective client at a trade show, on the other hand, that would be reasonable.

My clients are "finance types" and I meet them at their location, which is most often in the countryside. If revenue came knocking, I won't be handing out client's names and addresses for them to confirm the nature of the business discussions.

What I'm currently thinking then is... For BD, I'll conservatively expense only ~15% of annual revenues. Will not expense anything extravagant (definitely no Ritz weekends). Will only expense overseas travel when there's a contract that I can refer to. Thoughts?

[gregNoWorries]

Is there any kind of accepted unofficial threshold (as a % annual revenue) for this type of BD that HMRC recognises?

No there isn't. If your business has a high BD cost, then it sounds like this is just a result of the type of work your business does. There is no need to limit it based on HMRC, it would be purely a business/cashflow decision (ie how much can your business afford to pay in marketing).

Ideally keep a traceable record of the purpose for these costs. eg emails to set-up meetings, your business diary, meeting minutes or follow-up emails etc, just in case you needed to show that the costs were incurred in the course of doing business.

[hobnob]

If challenged by revenue, what evidence would I need to provide in addition to receipts? It's easy to justify expenses that lead to paid engagements but that's not always the case.

Suppose that you paid for an advert on local radio, but that didn't lead to any extra work. I think you could still justify that as an expense (even if it was an unwise business decision), because the sole purpose is to advertise your company. The problem comes when you might be getting a personal benefit from it.

[sadkingbilly]

Thanks. There are no issues at all on 1 & 3.


My clients are "finance types" and I meet them at their location, which is most often in the countryside. If revenue came knocking, I won't be handing out client's names and addresses for them to confirm the nature of the business discussions.

That sounds completely above board then.
Just tell HMRC to sod off.
Let us know how you get on?

[northernladuk]

My clients are "finance types" and I meet them at their location, which is most often in the countryside. If revenue came knocking, I won't be handing out client's names and addresses for them to confirm the nature of the business discussions.

I think you will. Apparently tax investigations are not very pleasant and very thorough. Saying you travelled to this place, spent this and I'm not telling you why will not wash as it's the whole point of the investigation. They will want chapter and verse. Not giving information when requested is going to just make things a lot worse.

Everyone has given the correct advice but I'll play devils advocate based on previous posting history on here. Generally when someone puts a question up asking 'Can I' on something that's generally pretty well documented it usually turns out they intend to try push the boundaries and it usually boils down to 'I'm going to take piss, will I get caught?'. Unfortunately this question is phrased in exactly that way. Valid expenses are very well documented and the 'wholly and exclusively' rule gives it sanity check and personal benefit isn't hard to work out. There is a common sense element as well.

You've got all the information you need and it's pretty clear. It's then down to you to justify every penny. If there is any personal benefit to it then you are pushing the boundaries and it's down to your risk appetite. Racking up an inordinate amount of expenses compared to most LTD's might make you a target so don't take the piss unless you can justify every single penny to a person that want's nothing more than to ruin you.

If you are OK with all that then fill your boots. Full disclosure, and I mean full, not woolly statements and half truths, to your account should get the final rubber seal.

Sorry if everything you are going to do is 100% genuine and you work slightly differently to most LTDs. As I say, just playing devils advocate based on similar posts that turned out not to be genuine.

[northernladuk]

What I'm currently thinking then is... For BD, I'll conservatively expense only ~15% of annual revenues. Will not expense anything extravagant (definitely no Ritz weekends). Will only expense overseas travel when there's a contract that I can refer to. Thoughts?

I wouldn't be going making up scenarios and trying to fit in to them as it's not really helpful without full context. That's going to lead to mistakes and situations that are difficult to justify. None of your thoughts above really mean anything, the first is a budget constraint and makes no difference to tax treatment, it's possible that in some circumstances a Ritz weekend might be justifiable and overseas travel to get work when the is no contract could also be justified so without context there isn't a right or wrong answer.

Don't make up scenarios, just deal with each situation, work out if it's expensable, wholly and exclusively, no personal benefit and could it be justified to a tax inspector. If it is do it, if it doesn't, don't. If you do it, make sure it's well documented and get on with it.