Income Tax (Earnings and Pensions) Act 2003 section 357

Business entertainment and gifts: exception where employer's expenses disallowed

Section 357 provides an exception to the general rule in section 356 that prevents employees from claiming a tax deduction for business entertainment and gift expenses, allowing the deduction where the employer itself would not be able to deduct the same cost.

• An employee may deduct entertainment or gift expenses where the employer specifically paid or made available an amount to cover those expenses, and the amount is included in the employee's earnings.
• The exception applies where the employer's own deduction for the same amount would be disallowed in calculating its trading profits, expenses of management, or BLAGAB management expenses under the relevant tax legislation.
• A further exception applies where the employer is a tonnage tax company and the entertainment expense would have been disallowed in calculating the employer's relevant shipping profits had a tonnage tax election not been in place.
• The exception still applies even where the employer's disallowance does not actually bite because of a charitable exemption or other relief — the key test is whether the disallowance would otherwise have applied.