When we think of conducting business with customers, most of us wouldn’t think twice about complementing our meal with a nice glass or two of wine (insert tipple of choice here).
It’s a long-standing practice, but we are noticing a decline in alcohol expense claims. Alcohol isn’t always perceived as a must when doing business nowadays and this can make alcohol expense claims a bit of a grey area.
What Does the Law Say about Refunding Alcohol in Expense Claims?
Fundamentally, nothing special. This is because the topic of alcohol in business is a fine line.
Technically, alcohol is a form of food. This means that it is purchased and reimbursed in the same way as other meal types. Therefore, it can be incorporated as part of the food bill and can easily be presented on the expense claim when submitted to the employer.
The issue becomes complex due to the matter of necessity. Does a glass of wine ensure a successful commercial relationship between a customer and a supplier? Does the inclusion of alcohol progress business decisions? (Some would say yes!)
Ultimately, is it an Expense Like Any Other as Part of a Business Meal?
Yes and no. When it comes to tax reclaims, what matters most is the question of proportionality in the expenses incurred. As long as the expenses are compliant and deemed necessary to help achieve the desired goal, then there should not be a problem.
However, the employer always has the final say in the matter and employees are beholden to the terms of the company’s travel and expense (T&E) policy.
How Do Employers Manage Alcohol in Expense Claims?
In the end, it's up to the employer to decide. Most employers state that the employee has to pay for their own drinks if it’s not business related. However, if it is, then the company can and must legitimately reimburse the employee for their professional expenses – within reason. There’s a difference between the employee consuming two glasses and two bottles of wine with their meal though!
This is why it’s essential to have expense policies that document different situations and correct handling for all eventualities.
How is Alcohol Documented in T&E Policies?
Here are some examples of alcohol treatment in policies:
- The categorical policy: No refund on the consumption of alcohol. If the employee wants to drink, they would have to pay for it.
- The pragmatic policy: Reimbursement is limited to one drink per person and per meal, or the equivalent of £X, excluding distilled spirits
- Flexible policy: The company leaves it to its employees to self-regulate. The company will only intervene in cases of overt and repeated abuse of responsibility.
There are also other contexts in which alcohol can be consumed: in an airplane, in the minibar of a hotel or at the café of a station while waiting for a train. Each case must therefore be identified by the expense claim policy. If it’s acceptable to reimburse an alcohol expenditure in the context of a commercial or partnership relationship, this may not be the case in the context of a solo trip. It’s up to the employer to be specific and detailed about the different scenarios employees may find themselves in.
How Should Alcohol on Receipts Be Included in Expense Claims?
It all depends on your internal policy. Even with the strictest policies, it is not uncommon for some employees to attempt to pass off alcohol as another expense despite a clear ban.
You can avoid this by requiring the detailed bill breakdown from the restaurant, rather than just a sum total. You’ll need this in any case if you plan to reclaim VAT on the meal.
How Do I Handle the VAT Reclaim on Alcohol?
Within food and beverages, there are different VAT rates. All alcoholic beverages are taxed at 20%, regardless of their type or proportion of alcohol (beer, wine, cider, etc.). VAT can be reclaimed on a reasonable level of drinks with a meal where it is subsistence and not entertainment. If you reimburse alcohol in an expense claim, it is important to ask for a detailed receipt. The invoice must mention the VAT rates so that you can recover the appropriate amount.
If your employees are allowed to get reimbursed for alcohol, it's all about effectively overseeing and managing these claims so that everyone is following the same process.
While prohibiting alcohol outright may be the easier and more cost-effective route, you’ll need to consider your company’s culture and values, as it can be seen as inflexible and somewhat draconian.
If you’d like to speak to a member of our team about how you can more effectively handle expense claims that contain alcohol and what many businesses like yours are doing, contact us.