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HMRC internal manual

Employment Income Manual

Other expenses: entertainment expenses: application of Section 336 to entertainment expenses: benefits of directors and employees used for business entertaining

Section 336 ITEPA 2003The cost of benefits provided for a director or employee - such as the rent of a flat or yacht - will not normally be disallowed in computing an employer’s tax liability. The benefits will be included as general earnings of the director or employee, subject to their right to request a deduction under Section 336 in respect of genuine business use.

It follows that where the director or employee uses the flat, or yacht, for business entertainment Section 356 ITEPA 2003 will operate to disallow the expenditure (see EIM32585).

Nevertheless, provided that you have the agreement of the Inspector dealing with the employer’s accounts you can accept an application to have such a disallowance made in the employer’s computations where:
* the whole or part of the flat etc is used exclusively for business entertaining or * the flat etc is under the employer’s direct control and is used primarily for the entertainment of customers as distinct from being placed at the disposal of a director or employee for their benefit or for the benefit of members of their household.As regards the exemption for goodwill entertainment provided for an employee or office holder by a third party, see

EIM21835 onwards.