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HMRC internal manual

Business Income Manual

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Specific deductions: entertainment: entertaining by employees

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

Difference between specific entertainment allowance and general expenses allowance

Where a trader makes a payment to an employee for entertaining that payment is disallowed by S45(2) Income Tax Act 2005 (ITA 2009) for unincorporated businesses and S1298(3) Corporation Tax Act 2009 (CTA 2009) for companies.

This applies whether the payment is a reimbursement of specific expenditure incurred by the employee or if a general entertainment allowance is given to the employee. In both cases, the employer is in a position to know that the expense is for the purpose of business entertainment.

However, in some cases employees are given general expenses allowances to cover all types of expenditure (not just entertaining) and the employer has no direct control over how this money is spent. Where the allowance is an expense of employment (satisfying, for example, the wholly and exclusively test, see BIM37700 onwards), such expenditure is allowable.

Information about the consequences for employees of entertainment expenditure incurred by them is contained at EIM32565 onwards