Commentary on Sections Example 3 Ne = £5,000; Da = 183; De = 183; Smg = 0 Section 357: Business entertainment and gifts: exception where employer’s expenses disallowed
1551.This section contains an exception to the general prohibition on deducting business entertainment and gifts expenses in section 356. It derives from section 577(1)(a) and (3) of ICTA and contains new drafting material.
1552.Subsection (1) disapplies the prohibition on deducting entertaining and gifts expenditure in section 356 where certain conditions are met and refers to further alternative conditions in subsections (2), (3) and (4).
1553.Subsection (2) requires that the deduction of the expense must fall to be disallowed in calculating the employer’s profits because of section 577 of ICTA where the employer is carrying on a trade, profession or vocation. In practice, this condition is treated as met where the expense would have been disallowed apart from any exemption in section 505(1)(e) of ICTA (exemption from tax under Schedule D in respect of the profits of any trade carried on by a charity where the profits are applied solely to the purposes of the charity etc.) or because of another relief applying to the profits of the employer. Subsection (2) spells out this treatment.
1554.Subsection (3) contains an alternative requirement that the expense must fall to be disallowed in calculating the employer’s expenses of management because of section 577 of ICTA. Again, it is made clear that the fact the disallowance does not operate because a relief applies is ignored.
1555.Subsection (4) contains the other alternative requirement that the expense would fall to be disallowed in calculating the employer’s “relevant shipping profits” apart from the making by the employer of a tonnage tax election. See Change 95 in Annex 1.
1556.Subsection (5) contains cross-references to Schedule 22 to FA 2000 to explain the terms used in subsection (4) relating to tonnage tax.
1557.The reference in section 577(3)(b) of ICTA to “in whole or in part” has been omitted. See Note 38 in Annex 2.