PIM2082 - Deductions: main types of expense: entertaining expenses and gifts
Under sections 45 to 47 of the Income Tax (Trading and Other Income) Act 2005 (applied to property businesses by sections 272 and 272ZA) and section 1298 of the Corporation Tax Act 2009, a customer can’t deduct expenditure on business entertaining and gifts. In the same way, capital allowances are not due on assets used for business entertainment.
Business entertainment includes hospitality of any kind provided by a business, or by an employee. The person entertained may be a tenant, potential tenant, landlord or any other person.
But an employer can deduct the cost of entertainment (such as meals) provided to their employees as long as the provision for them isn’t incidental to the entertainment of others.
For example, where an employee is provided with free meals, the cost can be deducted. But where an employee takes (say) a supplier to lunch at a restaurant and the employer meets the bill, the whole cost is for business entertainment and can’t be deducted.
Employees may be liable to tax on the benefit they get from entertainment their employer provides and for which the employer gets a deduction in computing their rental business profits. Employers have an obligation to give details of benefits when making their PAYE returns.