Representation expenses and their accounting in 1C: Accounting

In the interests of business, various meetings are held with investors, potential clients, creditors and other entities and, as you know, such meetings involve various expenses. The venue for events can be restaurants and various kinds of conference rooms, and all this requires money. Such expenses are financed from a budget specially allocated for such purposes and a clear and strict reporting procedure must be maintained for them for tax purposes. In this article we will consider the reflection of entertainment expenses in 1C and the procedure for their taxation.

What is included in entertainment expenses?

The concept itself is very broad and it may not be completely clear to the average person what exactly is meant. Therefore, before reflecting entertainment expenses in 1C, understand the meaning of the concept. The table below contains a list of possible costs that can be included here.

About the composition of entertainment expenses

Entertainment expenses (PR) are taken into account separately from other types of expenses according to the rules of Art. 264 Tax Code of the Russian Federation. Paragraph 2 of this article states what applies to such costs.

You can learn more about this in our article “Which expenses for taxation are representative expenses.”

Expenses for the purchase of alcoholic beverages can also be attributed to the PR, taking into account the position of the Ministry of Finance, published in letter dated January 22, 2019 No. 03-03-06/1/3120. As the department explains, the list of products is not fixed , therefore expenses for alcohol purchased as part of a business event can be included in the PR.

But, for example, treats and drinks that are on tables in the hall where participants are waiting for a meeting or receiving documents cannot be taken into account as part of the PR. This position was reflected in the letter of the Ministry of Finance dated March 25, 2010 No. 03-03-06/1/176.

Tax nuances

In the interests of taxation of company profits, entertainment expenses are taken as standardized. The norms of the Tax Code of the Russian Federation state that during one tax period they are attributed to other expenses no more than 4% of the taxpayer’s expenses on payroll for the same period.

Value added tax deductions have their own nuances. The law stipulates that tax amounts on entertainment expenses related to the deduction when calculating the company’s income tax are deductible.

Income tax

Expenses are recognized as justified and documented expenses (and in cases provided for in Article 265 of the Tax Code of the Russian Federation, losses) incurred (incurred) by the taxpayer.

Justified expenses mean economically justified expenses, the assessment of which is expressed in monetary form.

Any expenses are recognized as expenses, provided that they are incurred to carry out activities aimed at generating income (clause 1 of Article 252 of the Tax Code of the Russian Federation).

Other expenses associated with production and sales include hospitality expenses associated with the official reception and service of representatives of other organizations participating in negotiations in order to establish and maintain cooperation, in the manner provided for in paragraph 2 of Art. 264 of the Tax Code of the Russian Federation (clause 22, clause 1, article 264 of the Tax Code of the Russian Federation).

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Registration procedure in 1C

It is always easiest to use an example to understand the nuances of conducting any accounting procedures. This question will be no exception. Let’s assume that the company in question selling plastic products is a member of the OSN and pays VAT. The company held a meeting of potential buyers with the involvement of a catering company. All services of a third party were provided on the basis of an invoice and act.

Expenses for this event should be included in the costs of core activities, that is, sales expenses. They are fully attributed to the period when the act was signed and provided. In this case, it is worth using accounting account 44.01.

The accountant should include the amount spent on the reception as entertainment expenses as part of other expenses, but by law no more than the four percent threshold of the total payroll for the specified period. The machine, according to the regulations, normalizes all such expenses automatically at each close of the reporting month. However, you should be extremely careful in order for the machine to perform such an action, you need to let it understand what cost item was used. Therefore, it is extremely important to include entertainment expenses as an expense for a cost item.

Violations in accounting for entertainment expenses

Violation No. 1 – time for business, time for fun

Sometimes after business negotiations, companies arrange leisure time for invited persons. For example, they organize an excursion for them or take them to a concert. Moreover, all expenses, including the purchase of tickets, are usually taken into account when taxing profits. Such actions are a violation. In this case, expenses for the purchase of tickets to an entertainment event cannot be considered entertainment expenses, therefore they cannot be classified as deductible expenses in any case.

Or it happens that to organize a large-scale representative event (for example, a business conference for dealers), a performing company is hired to organize everything. At the same time, in the primary documents the service for organizing a business conference is indicated as the name of the service. And its cost was completely written off by the customer organization as entertainment expenses. However, upon detailed study of all available documents, it turns out that during the conference artists performed, photo sessions were held, etc. This circumstance will most likely raise questions from the tax authorities, and in order to avoid risks, we recommend making corrections to tax accounting.

It’s good if you can find out from the documents the cost of each “component” part of the event. In this case, the amount attributable to the entertainment parts of the program can simply be excluded from the deductible expenses and, if necessary, submit an updated income tax return (and, possibly, VAT, if the input VAT on this part of the services was accepted for deduction). But if the documents indicate only one - the total - amount, then there is a risk that the tax authorities will exclude this entire amount from the “reduced” expenses.

Therefore, in order to avoid the risk of withdrawal of the entire amount of services during tax audits, it is advisable in such cases that the documents contain an indication of each part that makes up the event organization service. And, accordingly, the entertainment part of the service is not taken into account for tax purposes.

Thus, you should carefully study all the documents that you receive from your counterparties. Moreover, it is extremely important to pay attention to the wording.

One company, as an analysis of judicial practice showed, had problems only because the documents contained the word “bath” (resolution of the Ninth Arbitration Court of Appeal dated May 15, 2015 No. 09AP-15172/2015 in case No. A40-151700/14 ). The company was holding a conference at the hotel, where representatives of several organizations were invited. At the same time, negotiations took place with each manufacturer separately (since such negotiations were a commercial secret). To achieve this, the hotel organized official receptions for negotiations between the customer company and manufacturers in various separate rooms of the hotel, incl. in a room called “Bathhouse”. The tax office recognized this part of the expenses as unfounded, despite the fact that the company was able to prove that guests consumed food in this premises. In this case, the court sided with the company, since it apparently managed to prove that this premises was used exclusively for negotiations and not for “bath” pleasures.

In general, sometimes courts are quite loyal to taxpayers. For example, in the ruling of the Tenth Arbitration Court of Appeal dated August 17, 2011 in case No. A41-31860/10, the arbitrators resolved the dispute in favor of the company, which spent more than 2 million rubles. for holding a ceremonial event on the occasion of the opening of the plant and spent them as entertainment expenses. The judges were not confused by the fact that the event was clearly festive in nature and included a performance by a brass band, and a host was also hired to lead the celebration. It was enough for them that during the event the plant presented product samples, and also concluded contracts for the supply of bricks. On this basis, the court concluded that the expenses for organizing the opening of the plant were incurred to carry out activities aimed at generating income.

But you cannot, of course, count on the courts applying the same approach in your case.

Violation No. 2 – lack of a list of invitees

Sometimes it is impossible to find out from the available documents exactly who was present at the negotiations (representatives of which organization and specifically the full names of the invited persons). Although the Tax Code of the Russian Federation does not require that the invited persons be indicated in the documents, it should be remembered that a representative event is an official reception of representatives of other organizations participating in the negotiations. Therefore, so that the tax authorities cannot suspect the company that, say, the director’s personal gatherings in a restaurant took place as an official event, it is advisable to record in any of the available documents a list of persons participating in the official event.

Officials also warn that the report must indicate the composition of the invited delegation and participants of the host party (letter of the Federal Tax Service of the Russian Federation for Moscow dated April 12, 2007 No. 20-12/034115).

As for judicial practice, there is no uniform approach. Sometimes courts take into account the presence/absence of a list of invited persons. Thus, in the decision of the Thirteenth Arbitration Court of Appeal dated April 18, 2013 in case No. A56-55481/2012, the court sided with the Federal Tax Service on the basis that the submitted documents did not contain a list of client officials and the names of third-party organizations participating in the event.

But there are examples of decisions in which the courts do not recognize the lack of data allowing identification of representatives of third-party organizations, as well as the organizations themselves, as a violation (resolution of the Arbitration Court of the Volga-Vyatka District dated December 22, 2014 No. F01-5056/2014 in case No. A11-8267/2013 ).

In any case, it is better to include in the report the names of all invited persons, as well as the names of the companies whose representatives they are.

Violation No. 3 – tipping

There are cases where companies have reimbursed their employees for tips they gave during official events. These expenses, naturally, were not confirmed by primary documents, but were included in the expense report and compensated based on the employee’s application.

At the same time, the companies took these payments into account as entertainment expenses, which is a clear violation. Firstly, there is no documentary evidence of expenses, which violates the provisions of Art. 252 of the Tax Code of the Russian Federation. Secondly, the payment of tips is not included in entertainment expenses, and they can hardly be regarded as expenses for an official reception. The exception is when the tip is automatically included in the bill provided by the restaurant.

Here, by the way, risks arise not only in terms of income tax, but also in terms of personal income tax with insurance contributions. Tax authorities may consider such payments to be income subject to personal income tax and contributions.

Violation No. 4 – gifts for guests

As part of business events, participants may be given gifts. It happens that the cost of such gifts to organizations is taken into account when taxing profits. This is a violation. From paragraph 16 of Art. 270 of the Tax Code of the Russian Federation clearly states that expenses in the form of gratuitously transferred property are expenses not taken into account for tax purposes.

The only exception is when the gifts presented bear the company’s symbols. In this case, the expediency of spending on gifts, as explained by officials and judicial practice, can be justified. Thus, the letter of the Federal Tax Service for Moscow dated April 30, 2008 No. 20-12/041966.2 states that such gifts are taken into account as part of entertainment expenses. Please note that these expenses, according to the authors of the letter, are considered not advertising (as one might initially assume), but entertainment expenses. For the reason that they are awarded as part of an official event.

The courts also agree that the costs incurred in connection with the purchase of souvenirs and gifts with the company’s symbols are considered entertainment expenses, since they are associated with the reception of representatives of enterprises - counterparties of the company in order to establish economic relations (resolution of the Federal Antimonopoly Service of the Moscow District dated 05.10.2010 No. KA-A41/11224-10 in case No. A41-18513/08).

Why is it important to separate whether these are entertainment or advertising expenses, since both are taken into account when taxing profits? Because the standard for these costs is different. If for entertainment expenses the standard is 4% of labor costs, then for advertising expenses in the form of gifts - 1% of sales revenue.

By the way, when giving gifts, the question arises not only in relation to income tax, but also in relation to VAT. The fact is that the gratuitous transfer of property (regardless of whether it contains company symbols or not) is recognized as a sale for VAT purposes, and therefore is subject to taxation (subclause 1, clause 1, article 146 of the Tax Code of the Russian Federation, letter from the Ministry of Finance of Russia dated March 15 .2017 No. 03-03-06/1/14731). The exception is the transfer of gifts worth no more than 100 rubles. per unit and which at the same time contain the symbols of the company. Such a transfer is exempt from VAT on the basis of sub-clause. 25 clause 3 art. 149 of the Tax Code of the Russian Federation. Therefore, when giving gifts, it is necessary to check whether there is an obligation to charge VAT on their value.

Violation No. 5 – tickets and hotel

It happens that participants invited to the event come from other cities or countries. In this case, some organizations undertake absolutely all expenses associated with the arrival of guests at the official reception. For example, the costs of air tickets, visas, as well as the costs of accommodating invited persons in a hotel. Sometimes companies include these expenses as a reduction in profit as entertainment expenses. Is this a violation?

Here we cannot speak unequivocally about a violation, but we always warn about the risks.

Officials in their letters directly indicate that expenses for guest accommodation do not reduce the tax base for corporate income tax, since these expenses are not provided for in paragraph 2 of Art. 264 of the Tax Code of the Russian Federation (letters of the Federal Tax Service of the Russian Federation for Moscow dated April 12, 2007 No. 20-12/034115, Ministry of Finance of the Russian Federation dated December 1, 2011 No. 03-03-06/1/796). A similar conclusion was made regarding the costs of visa support, as well as payment for air and railway tickets for representatives of foreign companies, as well as costs associated with the delivery of those arriving for the event from the station to the hotel (letter of the Federal Tax Service of the Russian Federation dated April 18, 2007 No. 04-1- 02/ [email protected] ).

Judicial practice on such disputes is ambiguous. For example, in the decision of the Federal Antimonopoly Service of the Central District dated February 19, 2008 in case No. A68-AP-361/14-05-414/14-05-665/14-05, the court agreed that the costs of paying for the accommodation of conference participants in By virtue of direct instructions of the law, they cannot be considered as entertainment expenses. The same conclusion is contained in the decision of the Fourteenth Arbitration Court of Appeal dated September 22, 2016 in case No. A66-17120/2015.

At the same time, in the decision of the Second Arbitration Court of Appeal dated July 28, 2016 No. 02AP-5191/2016 in case No. A82-15075/2015, the court allowed to accept as representation expenses under an agreement for the organization of banquet services, within the framework of which accommodation services were provided .

This is not the only example of a court ruling in favor of companies. Another example is the resolution of the Ninth Arbitration Court of Appeal dated March 10, 2011 No. 09AP-1937/2011-AK in case No. A40-99409/10-13-522. In this case, the company classified the living expenses of invited persons not as entertainment expenses, but as “other expenses” on the basis of subsection. 49 clause 1 art. 264 Tax Code of the Russian Federation. She managed to prove that paying for the accommodation of invited persons is economically justified and aimed at future profit (business development, attracting clients and partners, concluding agreements and contracts).

Thus, when accounting for the expenses in question for income tax purposes, the company may face claims from inspectors. And if the case goes to court, then winning, as judicial practice shows, is possible, although not guaranteed.

The exclusion of controversial expenses from “tax” expenses by tax authorities is not the only trouble that can threaten companies.

At the same time, claims regarding VAT and personal income tax may arise. VAT may be additionally charged in connection with the recognition of the deduction of “input” VAT (if such was declared) as illegal. As for personal income tax, tax authorities can declare that individuals have income in kind, which is taxed (clause 1 of article 210, subclause 1 of clause 2 of article 211 of the Tax Code of the Russian Federation, letters of the Federal Tax Service of the Russian Federation dated April 18, 2007 No. 04- 1-02/ [email protected] , Ministry of Finance of Russia dated December 3, 2019 No. 03-03-06/1/93894).

Violation No. 6 – be careful, standard!

Entertainment expenses taken into account for income tax purposes are subject to rationing. The standard is 4% of labor costs. Companies are usually aware of this, and violations in this regard are quite rare.

However, sometimes an accountant takes the wrong basis for calculating the standard. For example, in one company a reserve was formed for the upcoming payment of vacations to employees. At the same time, expenses in the form of deductions to this reserve did not fall into the base on the basis of which the standard for entertainment expenses was calculated. Whereas, according to paragraph 24 of Art. 255 of the Tax Code of the Russian Federation, expenses in the form of deductions to the reserve for the upcoming payment of vacations to employees are considered labor costs. It turns out that the company underestimated the standard and took into account entertainment expenses in a smaller part than it could have. These actions do not entail tax risks, but increase the tax burden of the company.

But the next point, related to the standard of entertainment expenses, raises risks, but not for income tax, but for VAT. Thus, some companies whose entertainment expenses exceed the standard forget about the provisions of paragraph 7 of Art. 171 Tax Code of the Russian Federation. According to this paragraph, the amount of deduction of “input” VAT on entertainment expenses directly depends on the standard. In other words, a deduction can be claimed only for that part of the entertainment expenses that is included in taxation. Therefore, it is important to check whether the standard is exceeded, not only for income tax purposes, but also for VAT purposes.

How to reflect the costs of servicing receptions

It is extremely rare for companies to manage on their own in order to organize a decent reception for third parties. Yes, actually, and why. There are special companies that will help with organizing the event and finding a location for it, and will think about what to feed the guests and how to entertain them in between negotiations. The machine contains special functionality for displaying purchased services from the following companies:

• Receipt (acts, invoices);
• Specify the type of service operation;
• In the title, indicate the specific counterparty from whom the services were accepted and under what contract;
• In the table, enter the nomenclature of the service, its price and at what rate VAT is charged;
• Enter accounting account 44.01 with analytical detail as entertainment expenses.
• For taxes, use the 19.04 accounting account and it is recommended to use the same accounts in both types of accounting so as not to bring them into compliance later;
• Register the invoice received for services provided.

Expenses for selling goods

The following example - there was one large transaction for the sale of goods, as part of which it was necessary to hold a banquet for representatives of the buying company. The costs of organizing a banquet must be taken into account when determining the profitability of the sale.

We create a new expense item. This time the expense type is Expenses on the sale of goods, the analytics type is order/sales.

We create a customer order and sell goods based on it.

Registration of sales expenses is also carried out by the document acquisition of services and other assets.

As an analytics, select the created customer order.

The recorded expense appears in the report.

To evaluate the profitability of a customer order, you need to make a selection for this order in the report settings.

Now the report displays the current actual profit on the order, taking into account both the cost of goods and the cost of entertainment expenses.

Please note that in this case, to determine the profitability of the order, it is incorrect to use the gross profit report, because it displays only additional costs charged to the cost of goods.

Tax accounting

After the document is processed by the machine to record the amounts of such expenses, it separates the total amount spent and the amount of tax. In the interests of forming a purchase book, the machine makes an entry in the special VAT accumulation register in the field of the tax presented. The admission form is shown in the figure.

Only that part of the VAT that is attributed to taxable profit in terms of entertainment expenses can be deducted. But at the moment the number of such losses is unknown.

In order to comply with this provision of the law, it is worth deactivating the flag in the received invoice that reflects the VAT deduction in the purchase book by the date of receipt, of course, in the case when it was marked.

Closing the period

When the accountant begins the period-closing procedure, the machine starts the routine process of calculating the share of write-off of indirect expenses. He greatly facilitates the accountant’s fate and takes on the responsibility of calculating the costs of profit taxation based on standardized expenses. You will not receive accounting records based on the results and simply request a certificate of calculation for it after closing and carrying out the procedure. In it you will see the position that interests us. The help reflects information on:

• The total amount of expenses for representation purposes;
• The amount that can be taken to reduce the tax base;
• The amount of the constant difference for the remaining amount.

Here you will not see the basis for rationing in the form of labor costs. You have the right to check the regulatory processes carried out by the machine through tax accounting registers.

According to the register, the data of the general payroll is visible to the user, and when subordinates make insurance contributions on their own initiative, then this information goes to the expense register. for voluntary insurance

Voluntary insurance for employees

According to paragraph 16 of Article 255 of the Tax Code of the Russian Federation, costs for voluntary medical and pension insurance, as well as personal insurance for employees, are taken into account in the tax base as part of labor costs. Voluntary insurance premiums are included in the costs of contracts:

1. long-term life insurance concluded for at least five years (within five years no insurance payments are provided, except in the event of the death of the insured person);
2. non-state pension provision, subject to the application of a pension scheme that provides for the accounting of pension contributions on the personal accounts of participants in non-state pension funds, with the payment of pensions until the funds in the participant’s personal account are exhausted, but for at least five years;
3. voluntary pension insurance, providing for the payment of pensions for life;
4. voluntary personal insurance of employees, concluded for a period of at least one year and providing for payment of medical expenses by insurers;
5. voluntary personal insurance in the event of death or loss of ability of the insured person to work in connection with the performance of his work duties.

The total amount of payments (contributions, expenses) of employers paid under such agreements is taken into account in an amount not exceeding 12% of the amount of labor costs. When determining the amount of labor costs, it does not include the costs of voluntary insurance, mentioned in clause 16 of Art. 255 Tax Code of the Russian Federation.