Contractors' Questions: Can I claim expenses for networking?

Freelancer’s Question: Would the cost of travelling to see and interact with professionals in my IT design market be allowable to the taxman as a business expense?

I am a designer and plan to attend two or three events – an exhibit and a presentation, plus a hardware conference. I am only going to the exhibit to gain inspiration for my work, but I need to attend the conference to meet contacts, find some new ones and absorb the general ‘goings-on’. I feel all three outings are necessary for my freelance business, which would perhaps suffer if I didn’t go along.

So, should the receipts from travel, food and drink for the events be charged on my self-assessment tax form as an expense? I believe they should be, but then; couldn’t every contractor claim that a holiday in Morocco was an inspirational ‘must-have’ for their business?! Please advise me on what would qualify as a business expense in my circumstances.

Expert’s Answer: I will assume that you are self-employed or operate through your own limited company. In either case, the expense has to be “wholly and exclusively” for the purpose of the business – note that “necessary” is not a feature.

The test you need to pass is framed in terms of the purpose of expenditure rather than its result. It does not enable HM Revenue & Customs to second-guess the wisdom of decisions taken for purely business purposes by reference to the amount of business benefit obtained from the expenditure. You are the person best placed to decide whether a trip is “wholly and exclusively” business.

That said, from a practical point of view, a problem would arise only if HMRC were to query the expense – so ensure you keep evidence in support. For example – you attend the exhibit and as a result you incorporate some of the designs/ideas in your own work. Then keep a photographic record in support – you will need to be able to connect the two. In summary, I would not rely on the word “inspiration” to achieve success – produce some hard evidence.

And to help you assess what will and will not qualify in the eyes of HMRC, now and in the future, let’s take your example of a holiday in Morocco. Look at this way (- the way HMRC would):

The purpose of the trip to Morocco is a holiday with any business element being incidental - therefore no tax relief.

So for you, in your current situation, to be able to claim the events on expenses you would have to demonstrate that your decision to go there was purely business with the private element (if any) being incidental.

The expert was Bob, the retired tax inspector.   

Monday 9th May 2011