Income Tax (Earnings and Pensions) Act 2003

Disallowance of business entertainment and gifts expenses E+W+S+N.I.

356 Disallowance of business entertainment and gifts expenses E+W+S+N.I.

(1) No deduction from earnings is allowed under this Part for expenses incurred in providing entertainment or a gift in connection with the employer’s trade, business, profession or vocation.

(2) Subsection (1) is subject to the exceptions in—

(a) section 357 (exception where employer’s expenses disallowed), and

(b) section 358 (other exceptions).

(3) For the purposes of this section and those sections—

(a) “entertainment” includes hospitality of any kind, and

(b) expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

357 Business entertainment and gifts: exception where employer’s expenses disallowed E+W+S+N.I.

(1) The prohibition in section 356 on deducting expenses does not apply if—

(a) the earnings include an amount in respect of the expenses,

(b) the employer—

(i) paid the amount to, or on behalf of, the employee, or

(ii) put it at the employee’s disposal,

exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift, and

(c) condition A, B or C is met.

(2) Condition A is that the deduction of the amount falls to be disallowed under section 577 of ICTA in calculating the employer’s profits from the trade, profession or vocation in question for the purposes of the Tax Acts (or it would do so apart from the exemption in section 505(1)(e) of ICTA or any relief applying in respect of those profits).

(3) Condition B is that the inclusion of the amount falls to be disallowed under that section in calculating the employer’s expenses of management for the purposes of giving relief under the Tax Acts (or it would do so apart from another relief applying to the employer).

(4) Condition C is that—

(a) the employer is a tonnage tax company during the whole or part of the tax year, and

(b) apart from the tonnage tax election, the deduction of the amount included in the employee’s earnings would fall to be disallowed in calculating the employer’s relevant shipping profits.

(5) In subsection (4) “tonnage tax company”, “tonnage tax election” and “relevant shipping profits” have the same meaning as in Schedule 22 to FA 2000.

358 Business entertainment and gifts: other exceptions E+W+S+N.I.

(1) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing entertainment or gifts for the employer’s employees unless—

(a) they are also provided for others, and

(b) their provision for the employees is incidental to their provision for the others.

(2) For this purpose directors and persons engaged in the management of a company are regarded as employed by it.

(3) The prohibition in section 356 on deducting expenses does not apply if the expenses are incurred in providing a gift which incorporates a conspicuous advertisement for the employer or, if the employer is a company, another company which belongs to the same group as the employer, unless—

(a) the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

(b) the cost of the gift to the donor, together with any other gifts (except food, drink, tobacco or tokens or vouchers exchangeable for goods) given to the same person in the same tax year, is more than £50.

(4) In subsection (3) “group” means a body corporate and its 51% subsidiaries.