Section 357 | Business entertainment and gifts: exception where employer’s expenses disallowed

(1)The prohibition in section 356 on deducting expenses does not apply if—

(a)the earnings include an amount in respect of the expenses,

(b)the employer—

(i)paid the amount to, or on behalf of, the employee, or

(ii)put it at the employee’s disposal,

exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift, and

(c)condition A, B or C is met.

(2)Condition A is that the deduction of the amount falls to be disallowed under section 45 or 867 of ITTOIA 2005 or under section 1298 of CTA 2009 in calculating the employer’s profits from the trade, profession or vocation in question for the purposes of the Tax Acts (or it would do so apart from the exemption in ... section 524 of ITA 2007 or section 478 of CTA 2010 or any relief applying in respect of those profits).^F1F2F3F4

(3)Condition B is that the inclusion of the amount falls to be disallowed (or would be disallowed apart from some other relief applying to the employer) under section 1298 of CTA 2009 in calculating—^F5F6

(a)the employer’s expenses of management for the purposes of giving relief under the Tax Acts, or^F5

(b)the ordinary BLAGAB management expenses of the employer for the purposes of section 76 of FA 2012.^F5F7

(4)Condition C is that—

(a)the employer is a tonnage tax company during the whole or part of the tax year, and

(b)apart from the tonnage tax election, the deduction of the amount included in the employee’s earnings would fall to be disallowed in calculating the employer’s relevant shipping profits.

(5)In subsection (4) “tonnage tax company”, “tonnage tax election” and “relevant shipping profits” have the same meaning as in Schedule 22 to FA 2000.