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HMRC internal manual

Employment Income Manual

Other expenses: entertainment expenses: disallowance under Section 356 ITEPA 2003: employer not resident in the United Kingdom

Sections 356 and 357 ITEPA 2003An overseas trading company may employ a representative in the UK but nevertheless be not resident in the UK for tax purposes. Its profits, whilst chargeable to tax in its own country, are not subject to UK tax. In that case:

  • there can be no disallowance on the company under Section 577 ICTA 1988 so
  • it is impossible for the employee to satisfy the conditions in Section 357 ITEPA 2003, and so avoid the disallowance under Section 356 (see EIM32585). This can, and often does, result in such employees being taxed on their reimbursed entertainment expenses with no possibility of an off-setting deduction under Section 336, even though the expenses may satisfy the conditions of that section. Section 356 prevents a deduction being given.

As regards UK trading employers whose profits are exempt under the terms of a double taxation agreement, see EIM32600.