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HMRC internal manual

Business Income Manual

Specific deductions: entertainment: meals provided for non-employees

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

Circumstances where the costs are allowable

In practice, the cost to a trader of ordinary subsistence for people directly involved in the trader’s business is an allowable expense, although such people may not be employees. There must be a direct link with services provided, so that the business entertainment is given pursuant to a legal obligation and in return for which a proper and sufficient quid pro quo is obtained (see BIM45014), and the food and drink must not be excessive.

The legislation refers to ‘employees’ and defines this term so that it includes, in relation to a company, a director of the company and a person engaged in the management of the company. This means that the exemption from the normal disallowance for hospitality (see BIM45033) for staff entertaining does not apply to the employees of any other person, even though they may work exclusively for the trader. See ESM3000 onwards.

It is increasingly common for work to be outsourced so that people who would once have been employed directly by a business are now subcontracted to the business from an outside supplier of labour (perhaps another company, a self-employed sub-contractor or an ‘IR35’ company). This is often the case with cleaners, security staff or information technology specialists. If the contract with the outside labour supplier specifies that the workers be provided with subsistence during the working day, or with the use of a staff canteen, then the costs incurred are not disallowed by the legislation. Similarly, meals given to a self-employed person contracted for a particular piece of work may be regarded as part of the cost of that contract.

The cost of subsistence provided for other people directly involved in the conduct of the business is also not disallowed by the legislation. Examples of this include security people attending a rugby match (as their attendance is necessary for safety purposes) or jockeys at a race meeting (without whom the racecourse would be unable to conduct its business). However, the cost of refreshments for journalists attending the same events would be disallowed under the legislation, as there is not the same direct link between their presence and the business.

For details of accommodation expenditure incurred in relation to non-employees, see BIM45046.

For details of subsistence and expenditure incurred in relation to training courses, see BIM45047.