20.1 This Chapter applies to all employees and directors.

In the context of this Chapter references to

a trade include references to any business, profession or vocation.
Employees of concerns carrying on a trade
Section 577 ICTA 20.2 Where an individual is employed by a trading organisation (including a nationalised industry)
and Section 45 the broad effect of the Taxes Acts is to prohibit a tax deduction for entertaining expenditure.
ITTOIA The disallowance for tax purposes of entertaining expenses may be made in one of two ways,
in computing the tax liability of the employer, or in computing that of the employee. The course
followed will depend upon the circumstances in which entertaining expenses are incurred.
Section 577 ICTA 20.3 Where an employee receives an allowance which is specifically earmarked for entertaining, and
Section 45(2) the employer is not a tonnage tax company, the payment is disallowed in calculating the
ITTOIA employers tax liability. This is also the case for any other kind of payment which is specifically
made by the employer for entertaining, for example, where the employer meets the employees
bills for entertaining or reimburses the employee for expenditure on entertaining.
Section 357 20.4 Where a payment is disallowed to the employer, or if the employer is a tonnage tax company,
the employee is not affected by the special provisions about entertaining mentioned in paragraph
20.2. Such an employee is entitled to a tax deduction for expenditure on business entertainment
which is allowable under the ordinary expenses rule mentioned in Chapter 7. In such circumstances,
a deduction may be due if the employee is required for genuine business reasons to entertain
customers, suppliers, or other business connections in the course of performing the duties of
the employment.
The expenses of a particular occasion are normally allowable if the purpose was to discuss a
particular business project. They may also be allowable if the purpose was to maintain an existing
business connection or to form a new one, even though no business was actually done.
20.5 Where the entertaining expenses incurred on a particular occasion are allowable no restriction is
made for the cost of the employees own meal.
20.6 If the entertainment expenses are not deductible under the ordinary expenses rule the employee
is taxable on amounts reimbursed by the employer even though those amounts may have been
disallowed to the employer. Thus no allowance can be given for entertaining personal friends or
business acquaintances where there is no business obligation to entertain them. Reciprocal
entertaining between business acquaintances, even though some business topic happens to be
discussed, may be really for social and not business reasons and, if so, this expense is not allowable.
20.7 It is for this reason that the expense of entertaining colleagues, that is, other employees of the
same organisation, is not normally allowed.
Section 356 20.8 Where an employee meets entertaining expenses from an inclusive salary or from a round sum
allowance paid by the employer to cover expenditure besides entertaining, the disallowance is
made in calculating the employees tax liability.
20.9 Where entertaining expenditure is not allowable the disallowance extends also to expenditure
incidental to the entertainment. Thus, the cost of the employees own meal, of a taxi to and
from a restaurant, or the cost of hiring a room for entertaining, would all be treated for tax
purposes in the same way as the cost of the entertaining itself.
Business entertaining and gifts
Section 356(3) 20.10 Entertaining includes hospitality of any kind and also expenditure on business gifts other than
free samples of the traders own products distributed with the aim of advertising to the general
public. There is, however, a limited exception for gifts which incorporate a conspicuous
Section 358(3) advertisement for the donor. This exception does not extend to gifts of food, drink, tobacco, or
vouchers exchangeable for goods. Further, it is subject to the condition that the aggregate cost
to the donor of the gifts does not exceed 50 a year in the case of any one recipient.
Employees of concerns not carrying on a trade
Section 336 20.11 Employees of non-trading concerns such as the civil service and the armed forces are entitled to
a deduction for entertainment expenses which are incurred wholly, exclusively and necessarily
in the performance of their duties.
Keeping records
20.12 Employees who believe they are entitled to a deduction for entertaining expenses should be able
to support the deduction with reasonable records of the amounts spent on particular occasions,
the nature of the entertainment, the persons entertained and the reason for the entertaining.
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Chapter 20 Entertaining expenses