When it comes to things like floating homes for ducks, adult movies and the like, the situation is clear. The only people who think they are a valid expense - one wholly and necessarily incurred as a part of their business - seem to be the MPs who tried to claim for them.

But what about the cost of food and drink employees buy while they're at work? Here, the situation has been much more complex. Take the case of self-employed traders, for example. People have tried to convince HM Revenue & Customs otherwise, but it has been adamant - the cost of food they consume while at work can't be set against tax. They would have to eat anyway, so the expense isn't "wholly and exclusively" a result of their business.

There have been exceptions - the most common being that the costs of meals taken in conjunction with overnight stays in hotels have generally been tax deductable. Even though HMRC's rules prohibited the expense, case law showed that they were.

New legislation clears things up, both for the self employed and for employees. It allows "modest" subsistence costs associated with business travel to be claimed against tax provided the journeys themselves are "wholly and exclusively" made for business purposes.

The new rules are much clearer. They allow a "breakfast rate" of up to £5 to be paid to people who need to leave home earlier than usual and, specifically, before 6am. A "one meal rate" can be paid when people are away from their home or normal place of work for at least five hours - an amount that can be doubled if the period exceeds 10 hours. Finally, a "late evening meal rate" of up to £15 may be paid to those required to work later than usual, finishing after 8pm. If the employee regularly starts early or finishes late (e.g. due to shift patterns) then this allowance cannot be used.

Organisations must apply for a dispensation to be able to use the new system and there are a few caveats - people actually have to buy food and/or drink to claim, for example. Overall, though, the system is simple and straightforward. In order to benefit from the new arrangements, employers will still need to apply for a dispensation using the P11DX form.

However, these new arrangements should in no way be confused with expenses associated with entertaining, which is a whole area of regulation in itself.

To find out more about the new arrangements, please call Andy Buchanan on 01206 867551 or email: andy.buchanan@lbgroupltd.com.

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