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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Other expenses: entertainment expenses: disallowance under Section 356 ITEPA 2003: exception where employer's expenses disallowed

Section 357 ITEPA 2003

In general, Section 356 ITEPA 2003 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.

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 profits.

The third condition is relaxed in the case of charities (see EIM32610), tonnage tax companies (see EIM32612) and companies whose profits are exempt from tax under the terms of a double taxation agreement (see EIM32600).

Cases where the disallowance is made in the employer’s tax computation will generally be those where the employer makes a specific reimbursement of entertaining expenses to the employee, or gives the employee a round sum allowance specifically for entertaining (see the table at EIM32586). In such cases, the expenses are taxed as part of the employee’s earnings subject to a deduction under Section 336 (see EIM32615 onwards).

If the employer gives the employee an expense allowance not specifically for entertaining, or simply pays the employee an all-inclusive salary, there will usually be no disallowance on the employer under Section 577 ICTA 1988 or Section 45 ITTOIA 2005. In that case, Section 356 ITEPA 2003 prevents the employee from obtaining a deduction for entertainment expenses (see the table at EIM32586).

Note that if Section 356 does not prevent the employee from having a deduction the employee still has to satisfy the conditions of Section 336. This can mean that occasionally:

  • the expenditure is disallowed in the computation of the employer’s profits under Section 577(1) ICTA 1988 or Section 45(1) ITTOIA 2005 and
  • the employee is also denied a deduction because the expenditure does not satisfy the general rule about deductions for expenses (see also EIM32635).

The table at EIM32586 summarises the application of Section 356 in relation to some particular types of payment.

For more detailed guidance regarding particular types of employer, see the table at EIM32570.