When you, as an entrepreneur, are on the road for business, you incur expenses for stay and consumption. But are these costs actually 100% deductible? Does this include a business dinner? What did the judge decide on this, recently?
Many entrepreneurs are on the road regularly, or stay away from home for longer periods of time, for example when closing a business deal, acquiring new inventory or equipment, or visiting a trade fair. Inherent to this are costs related to stay and consumption. The Court of Law of Breda recently addressed the issue whether or not this type of costs are deductible from your the profit, and if so, for which part (ECLI:NL:RBZWB:2021:2724).
The concerned entrepreneur was employed as a consultant, in the area of improving business and information processes. In relation to this he worked, on ;location, for different clients, multiple times, for extended periods of time. During these periods he incurred costs for rental of a studio, or room. Of course, he also incurred expenses for consumption of food. These costs he deducted from the profit made, taking into account the deduction limitation for costs of food and drinks. The deduction for entrepreneurs, of so called ‘mixed costs’, like the costs of food and drinks, is limited to 80%. Yet, the concerned inspector did not accept the deduction request, and denied all claims for consumption. The court had to be involved to submit a final verdict.
Business related expenses?
For the ruling judge the hinging question was whether or not the costs of consumption were actually valid business related costs. The judge ruled they are not. Other then costs for stay, the costs for consumption were not caused by the stay or execution of tasks elsewhere. Even an entrepreneur needs to eat and drink. That there may be economic reasons to not do shopping at the place of stay, or prepare food by oneself, does not deter from that, according to the judge. The character of consumption is mainly private, and thus deduction is not possible, also not partly.
Difference with an employee.
Your colleague submitted the argument that an employer can compensate an employer for business related consumption, and is allowed to deduct those costs, but that comparison is not valid, the judge ruled. An employer is obliged by contract rules to do so, on grounds of the specific relationship with the employee. This does mean that the dga (owner-manager) of a BV find themselves in a more advantageous position. For they can deduct the costs for consumption fully, while these costs are only partly related with the deduction limitation of mixed costs, which in principle is set at 73,5%.
Differences with a business lunch.
The fiscal treatment of the costs of consumption differs in this respect with a business lunch or dinner with related parties. It is established that there is a business-related importance to go eating out, and thus these costs can be marked as business related. Because the legislator does take into account that you save costs privately (for you do not have to eat a second time at home), the deduction is limited, according to the rules of mixed costs.
What can you do with this?
When you do make expenses for consumption, it is, on grounds of this ruling, of vital importance for a valid deduction approval, whether or not these costs can be marked as relating to business, or not. As mentioned before, this differs from consuming a meal during a stay-from-home, and a meal consumed with business relations. Tip. Always make sure to note the difference in your accounting, to avoid awkward discussions and corrections on your profit.