Income Tax (Trading and Other Income) Act 2005

Income Tax (Trading and Other Income) Act 2005

2005 CHAPTER 5

Commentary on Sections

Part 2: Trading income

Chapter 4: Trade profits: rules restricting deductions

Employee benefit contributions

Section 45: Business entertainment and gifts: general rule

196. This section and the following two sections deal with expenditure on business entertainment or gifts. This section is based on section 577(1),(5),(7) and (8) of ICTA.

197. Subsection (1) sets out the general rule that in calculating the profits of a trade no deduction is allowed for expenditure on providing entertainment or gifts.

198. Subsection (2) says that the general rule applies to sums paid to or on behalf of, or put at the disposal of, an employee (commonly known as an “expense allowance”) only if those sums are exclusively for meeting expenses in providing business entertainment or gifts.

199. The general rule in subsection (1) does not apply to an allowance made to an employee for meeting expenses which include – but are not restricted to – expenses incurred in the provision of business entertainment or gifts. But section 356 of ITEPA provides that no deduction from the employee’s earnings is allowed for expenses incurred in providing entertainment or gifts in connection with the trade, business, profession or vocation of his or her employer.

200. The definition of “employee” in subsection (4) of this section covers the application of this section and sections 46 and 47 to a non-resident company liable to income tax in the UK.