Every entrepreneur sooner or later asks himself what expenses he can count as deductible. This topic is quite controversial and inexperienced entrepreneurs often do not know how to deal with this problem and how not to make any mistakes. When an entrepreneur reaches for his or her wallet to pay for coffee and biscuits for employees or for a company event, the question naturally arises: can these expenses be charged as a business expense? The answer, as is often the case in tax law, is “it depends.” Keep in mind that not every purchase will always be treated by the tax authorities as a business-justified expense. So is it worth the risk and where does the line between cost and whim lie?
What are deductible costs?
Referring to the regulations, we may determine that, in accordance with Article 22 of the PIT Act, tax-deductible costs are expenses incurred in order to achieve revenue or to preserve or secure a source of revenue. The legislator is also tempted to indicate expenses which do not constitute tax deductible costs – this group includes, among others, the following:
- Purchase of land – the cost is not the purchase of land (only when selling land);
- The value of one’s own labour – the cost is not the work done by the owner or his family;
- Depreciation of an expensive car – the cost is not the depreciation of the value of the car over PLN150,000 (or PLN225,000 for an electric car);
- Donations – an expense is not donations made, except for food for charity;
- Fines and penalties – the cost is not the fines or penalties imposed.
Sounds simple in theory – after all, the legislature has made it clear what is a deductible expense and what is not – right? Well, somethimes it’s not that easy. Recognising an expense as a deductible expense requires proper justification and, in the case of groceries, the matter is not so obvious.
Purchase of groceries as a business expense – when is it possible?
The purchase of groceries can be recognised as a deductible expense, but only in certain situations. The key point here is how these products are used in the business.
If a business provides food products such as water, tea, coffee, etc. for its employees during working hours, this may be considered a deductible expense. This is due, among other things, to health and safety regulations, which indicate that it is the employer’s duty to provide all employees with drinkable water or other beverages during working hours, and since this is an obligation, the expenses related to this should be tax deductible.
Unfortunately – expenditure on food products may be deemed to be representation, i.e. an expense that does not constitute a tax deductible cost. If the purchased products are aimed at improving the company’s image (e.g. a sumptuous treat at a meeting), then, as practice indicates, the tax office may question their inclusion as costs.
The indicated position has also been highlighted on several occasions by the Director of National Tax Information. For example, in a letter from this year he indicated that: “The recognition of a given expense as a tax deductible cost is possible only if it is evident beyond any doubt from properly and reliably documented events that it is a purposeful and reasonably justified expense…Among the expenses not recognised as tax deductible costs, the legislator has listed….representation costs, in particular those incurred for catering services, the purchase of food and beverages, including alcoholic beverages…The notion of representation does not include, however, those activities which are undertaken in relation to the employees’ own employees…the provision of foodstuffs reduces interruptions for the preparation of meals, which allows the employees to focus on the performance of their tasks. Eating together fosters integration, the exchange of ideas and the creation of new solutions. It improves relationships within the company. The provision of snacks makes employees feel valued and that they are an important part of the company. This strengthens their attachment to the company. The benefits aim to raise working standards and improve the atmosphere in the office. As a result, their productivity and efficiency increase. Employees are more motivated and work faster and better. Providing employees with groceries is now a common practice in the labour market, which encourages them to take up and continue working for an employer…The applicant is entitled to include as a deductible expense the expenses for the purchase of groceries indicated in the application (various snacks and non-alcoholic beverages, e.g. coffee, tea, juices, nuts, sticks, biscuits, milk, water, sugar), which are made available at the company’s premises to employees in the course of their tasks. These expenses do not constitute representation expenses”.
Grocery shopping and catering operations
The situation is different if you are in the business of catering, catering or trading in food products. In this case, the purchase of food products is directly related to your business and can be included as a tax-deductible expense without major problems. However, it is important to document exactly what products were purchased and how they were used.
Summary
The purchase of groceries can be included as a deductible expense, but only in certain situations and with proper justification. It is worth bearing in mind the relevant documentation and being prepared for possible questions from the tax authorities. As always, the devil is in the detail and each situation requires individual analysis.