There are many times when you entertain your clients at a restaurant, such as during business meetings or sales meetings.
Of course, if the food and drinks are related to business, you can use them as company expenses.
But aren’t you satisfied with just getting a receipt?
In fact, receipts alone are not enough to prove that you have been entertaining your client.
In this article, I will explain the necessary methods to use the receipt as business entertainment and meeting expenses.
- 1 Receipts alone make it difficult to distinguish between private and business
- 2 What if you have a meeting or work in a cafe?
- 3 Checks on real estate landlords are particularly strict
- 4 Keep your receipts organized on a daily basis
- 5 What happens if it is not recognized as an entertainment expense?
- 6 Conclusion
Receipts alone make it difficult to distinguish between private and business
If receipts are all that’s needed for expenses, then even private drinks can be expensed.
Some people might get receipts from their acquaintances even though they did not pay anything.
The point is that it is difficult to distinguish between private and business expenses with just a receipt from a restaurant, and you may be asked to dig deeper during a tax audit.
If you can’t explain it properly, it may be considered as an “executive bonus” and you may have to pay a large amount of additional taxes.
Write the names of those in attendance
It would be a loss if the money you paid for the entertainment was not recognized as an expense.
To avoid such a situation, you should write the name of the person in attendance in the margin of the receipt.
Sometimes people have a hard time writing the name of the other person “because it’s private”.
However, if you don’t do this, it will not be approved as a company expense and you will lose money.
Be sure to think carefully about which is the more appropriate decision.
What if you have a meeting or work in a cafe?
There are times when you have a meeting with your business partner at a cafe.
Basically, receipts alone are insufficient as documentary evidence.
Keep minutes of the meeting
You can explain to the investigator that you spent the money as a meeting expense by writing down the minutes of the meeting and attaching the receipts.
It is preferable to use a template for minutes, but at the very least, you should write a note in the margin of the receipt.
Working alone in a cafe will not accepted as expense
The cost of working alone in a café is generally difficult to write off as an expense.
The question is whether there is a good reason why you have to work in a cafe.
I think the above conditions are strict.
It’s easy to think that you didn’t really work or that you were just drinking coffee and resting.
This is an expense that can easily be considered as “just a coffee break”.
If you want to expense the work done at a café for a good reason like the one mentioned above,
you should write the reason and the work done in the margin of the receipt.
Checks on real estate landlords are particularly strict
Normally, if you entertain your clients, suppliers, or subcontractors and have the proper paperwork in place, it will be considered an expense.
However, the number of people a real estate landlord can treat as entertainment expenses is very limited.
For example, when you are being investigated for entertainment expenses in a tax audit, you will be asked about your relationship with the other party.
If it is entertainment for someone other than the tenant, many investigators will not allow it as an entertainment expense.
The reasoning is that “there is no one to entertain other than the tenant”.
This is not explicitly stated in the regulations, but it is just that many inspectors judge it as such.
If you entertain prospective tenants or people who are considering moving in, there may be room for expenses.
Keep your receipts organized on a daily basis
These are just a few examples of how to write down the name of the person you are talking to and what you talked about on your receipts.
If you rush to do this all at once right before closing, you will most likely not be able to remember.
If at all possible, take your receipts out of your wallet at the end of the day, write them down and keep them in a safe place.
What happens if it is not recognized as an entertainment expense?
What happens if you entertain a client and get a receipt, but it’s not considered an expense?
【Director】Considered as a bonus for directors and tax will be taken.
If it is deemed as an executive bonus, taxes (income tax and inhabitant tax for the individual) will be collected retroactively.
【Company】Failure to pay withholding income tax
Normally, when a company pays wages to employees, it deducts income tax (withholding) and pays it to the tax office by the 10th of the following month.
This applies not only to wages, but also to any “economic benefits” given to the employee.
If the tax audit rejects the past entertainment expenses and deems it as a bonus for the director,
it means that the director was required to pay the withholding income tax to the tax office at that time.
Therefore, there will be an additional tax burden due to the delay in the payment of the withholding income tax.
The two basic additional taxes are as follows
This is a fine for not paying the withholding income tax.
You will be charged 10% of the amount of tax that you should have paid.
However, if you voluntarily pay the tax before the tax office points it out to you, you only have to pay 5%.
The following cases are exempt from this additional tax.
If you don’t pay a tax on time, you will be charged an “Delinquent tax,” which means interest.
The tax rate is not high if the payment is due within two months, but if it is over two months, the rate more than doubles.
▶Within 2 months of the due date
The lower of 7.3% per annum or “Special Standard Percentage (Note 1) + 1%”
The specifics are as follows.
- From January 1, 2021 To December 31, 2021：2.5％ per annum
- From January 1, 2020 To December 31, 2020：2.6％ per annum
- From January 1, 2019 To December 31, 2019：2.6％ per annum
- From January 1, 2018 To December 31, 2018：2.7% per annum
▶More than 2 months after the payment deadline
The lower of 14.6% per annum and the “special standard rate (Note 1) + 7.3%”
The specifics are as follows.
- From January 1, 2021 To December 31, 2021：8.8％ per annum
- From January 1, 2020 To December 31, 2020：8.9％ per annum
- From January 1, 2019 To December 31, 2019：8.9％ per annum
- From January 1, 2018 To December 31, 2018：9.0% per annum
It may not be as high as a credit card loan, but the interest rate is still quite high and surprising.
In addition, unless you have evaded taxes by lying or cheating, the delinquent tax can be paid for up to one year if you have submitted an amended tax return, etc.
【Company】Denial of the portion that is not regular equal pay
In addition, remuneration to executives must be the same amount throughout the term (Regular equal pay = 定期同額給与).
If the entertainment expenses are considered as an executive bonus, it will not be the same amount paid each time,
and it will be considered as an additional payment in addition to the same amount paid each month.
In other words,
when entertainment expenses are considered as bonuses for directors, the director who receives the bonus is considered to have received income and is subject to tax,
while the company is not allowed to use the expense as an expense and the tax is not reduced, resulting in a double taxation situation.
In this article, I explained the methods needed to expense entertainment food and beverage and meeting expenses.
Surprisingly, many people are relieved to just have receipts.
Make sure to organize your receipts and other documents every day so that you don’t pay unnecessary taxes.
Having any concerns like these with your accountant?
Your tax accountant…
- changes every year
- suggests no tax-saving measures
- doesn’t give you financial statements in a timely manner
- doesn’t explain the contents of the statements
- is reluctant to use the cloud software
- rarely shows up to your office
- is always late to answer your questions
- is elderly and you’re worried about the near future
Lack of communication with tax accountants can cause incorrect accounting processing due to the mess of the contents of the bookkeeping.
As a result, it increases the risk of additional taxation of up to 40% through a tax audit which is conducted once every 3 to 5 years.
To prevent paying additional taxes, it is important to share accounting processing and the business environment with tax accountants on a daily basis and to take measures to address additional taxation risks at an early stage.
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