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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: entertainment: meaning of business entertainment: no hospitality if sufficient ‘quid pro quo'

S45 Income Tax (Trading and Other Income) Act 2005, S1298 Corporation Tax Act 2009

‘Quid pro quo’ can be goods or services

A full and sufficient quid pro quo (i.e. something of equivalent value given in return) may take the form of services given, rather than cash or goods. So long as a trader can demonstrate that hospitality is given as part of a contractual arrangement in which services of an equivalent value are provided, then you should not treat the hospitality as business entertainment.

This principle was confirmed in the case of Customs and Excise v Kilroy Television Company Ltd [1997] STC 901. The company was a producer of television programmes, one of which depended upon the presence of a studio audience who had volunteered to take part. Members of the audience were provided with train fares and a buffet meal before the programme began. The VAT tribunal found that the value of the service provided by the audience by participating in the programme was sufficient to cover the cost of food and drink and so there was no hospitality involved.

The High Court described this finding as surprising (in view of the fact that there was no contractual obligation to provide the buffet) but not unreasonable. They said that the correct test was whether the company had ‘provided the buffet in pursuance of a legal obligation in return for which it obtains a proper and sufficient quid pro quo. That quid pro quo may be cash or it may be goods or services’.

In any case the question of whether the services provided are a ‘proper and sufficient quid pro quo’ is a question of fact. However, a purely nominal service (such as the completion of a questionnaire) is unlikely to provide sufficient value to cover the cost of the hospitality. The obligation to provide a service must be real. For example, where the entertainment is provided merely in the hope or expectation of a service being provided, the ‘proper and sufficient’ level of quid pro quo would be absent.