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HMRC internal manual

Employment Income Manual

Other expenses: entertainment expenses: disallowance under Section 356 ITEPA 2003: employees of charities

Sections 356 and 357 ITEPA 2003

Non-trading activitiesAs with Local Authorities and Health Services employers, charities often carry on activities that do not amount to trading. The position of employees engaged in those activities is the same as for the “non-trading” employees of Local Authorities, etc (see

### Trading activitiesHowever, many charities do carry on trading activities (for example, a number of fee paying schools are registered as charities). Employees who work in a trade carried on by a charity are subject to the same rules in relation to entertainment expenses as employees of any other business (see

EIM32585) except that if the charity’s profits are exempt from tax under Section 505(1)(e) ICTA 1988 they do not have to satisfy the “employer disallowance” condition (see Section 357(2)). So, as with double taxation agreement exempt companies, employees of a charity who incur entertainment expenses in connection with a trade carried on by the charity are entitled to a deduction under Section 336 for entertainment expenses which satisfy the conditions of that Section, to the extent that the expenses are met out of money supplied by or reimbursed by the employer for that purpose.