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HMRC internal manual

Employment Income Manual

Other expenses: entertainment expenses: introduction

Sections 336 and 356 ITEPA 2003

You cannot decide if an employee or office holder is entitled to a deduction for entertainment expenses solely by reference to the general rule for employees’ expenses in Section 336 ITEPA 2003 (see generally EIM31620 onwards). You must first of all decide if Section 356 ITEPA 2003 applies to prevent the employee obtaining a deduction. Section 356 is concerned with the expenses of ‘business entertainment’ (see EIM32580).

In general, Section 356 prevents any deduction for expenses incurred by an employee or office holder in providing entertainment, or a gift, in connection with the employer’s trade, business, profession or vocation. But the prohibition does not apply if:

  • the expense has been paid or reimbursed by the employer and
  • the employer’s payment or reimbursement is included in the employee’s earnings for tax purposes and
  • the employer’s payment or reimbursement falls to be disallowed under Section 577 ICTA 1988 or Section 45 ITTOIA 2005 in calculating the employer’s taxable profits.

The table in EIM32566 sets out the steps to follow in deciding if Section 356 applies. There is also a flowchart at EIM32650a.

The table in EIM32570 shows how the detailed guidance is arranged.

As regards the exemption for goodwill entertainment provided for an employee or office holder by a third party, see EIM21835 onwards.