Student Entertaining – HMRC clarification

BUFDG were pleased to receive confirmation from HMRC that students are in fact clients/business customers of HEIs.  Your response to that sentence may be “well, of course they are” however, the HMRC confirmation was necessary following a compliance review of one university.  HMRC had contended that an academic purchasing food for students should have been treated as staff entertaining.

With thanks to Grant Thornton who pushed back with technical arguments, HMRC’s initial view has changed.  BUFDG received the following note from our HMRC contacts:

"As you are aware HMRC has been considering the issue of student entertaining in universities, specifically whether expenses incurred by employees of a university in entertaining students for purposes such as improving student experience, marketing and gathering student feedback can be considered to be business entertaining and exempt from income tax.

HMRC’s view is that students at a university are clients/business customers of the institution. Where it is a requirement of the employee’s job to incur the expenses on taking students out for lunches and the costs are incurred wholly, necessarily and exclusively in the performance of their duties then provided that it is only students (other than themselves) that they are incurring entertaining costs in respect of then guidance at EIM32565and  EIM32615 would apply, specifically:

“ If an employee is required for genuine business reasons to entertain customers, supplies or other business connections in the course of his or her duties, the expenses of doing so can be regarded as satisfying the test in S336. This is the case whether the purpose of the occasion was to discuss a particular business project or to maintain existing or new business contacts, even though no specific business was done.”

Provided the conditions set out in guidance are met then HMRC are satisfied that the reimbursement of expenses can be considered to benefit from the exemption at S289A and no tax liability will arise on such payments. For a university to rely on this guidance they must maintain adequate records as described.

Please note that there may be occasions where student entertaining occurs that will not qualify for deduction as stated in the same guidance:

“Sometimes expenditure does not relate to a genuine working occasion. It may simply cover entertainment of the employee’s colleagues or friends where there was no business obligation to do so. In that situation no deduction should be given.”

As always if any of your members have any uncertainty about tax liability of their own arrangements that are not clearly addressed by HMRC’s guidance I would invite these to be submitted on the technical template to the HFE mailbox for HMRC to consider.

Please do not hesitate to contact me if you would like to discuss anything further about this issue."