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HMRC internal manual

Business Income Manual

Specific deductions: entertainment: expenditure which is not allowable

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

Expenditure that is incidental is not allowable

Expenditure on business entertainment is not allowable as a deduction against profits. Nor may a deduction be made for any expenditure which is incidental to business entertainment. Incidental expenditure is disallowed under the above legislation.

The meaning of ‘incidental’ is not defined, but you should interpret it to mean any expenditure that is incurred directly or indirectly in connection with the provision of entertainment. This might include payments to a third party for the organisation of entertainment or the costs of issuing invitations to customers. It will also include the cost of maintaining assets, such as yachts, which are used for business entertainment purposes. Guidance on travelling costs is given at BIM45025.

It is only the net expenditure incurred which is not allowable. So any charge which is made to the recipients of the entertainment is taken into account when calculating the amount which is not allowed (see the example in BIM45012).

Traders may obtain entertainment through barter arrangements in which their own goods or services are exchanged for hospitality. The amount to be disallowed is the larger of:

  • the value at which the transaction is recognised in the profit and loss account, and
  • the cost of the goods or services exchanged for business entertainment.