BIM45062 - Specific deductions: entertainment: expenditure paid to specialist providers: example
Company X is a book publisher. During the year, it pays £40,000 to Company Y, an events organiser, to arrange the hospitality at some of its book launches. The actual cost to Company Y of arranging these launches is £37,000.
Company X also pays £50,000 to Company Z, a public relations company. This is made up of £5,000 for organising a Christmas party for Company X’s customers and £45,000 for publicising the company and its products. Company Z spends £3,000 on working lunches with journalists in connection with Company X’s business.
The effect upon each company’s tax computations is as follows:
Company X
£40,000 paid to Company Y for book launches |
Not allowable. Payment has been made for business entertainment |
£5,000 paid to Company Z for Christmas party |
Not allowable. Payment has been made for business entertainment |
£45,000 paid to Company Z for publicity |
Allowed in full (the £3,000 has not been specifically reimbursed and is added back in Company Z’s computation) |
Company Y
£37,000 expended on book launches |
Allowed in full. Expenditure has been incurred by Company Y as agent for Company X and reimbursed in full. Not business entertaining expenditure in Company Y’s hands |
Company Z
£4,500 expended on Christmas party |
Allowed in full. Expenditure has been incurred by Company Z as agent for Company X and reimbursed in full. Not business entertaining expenditure in Company Z’s hands |
£3,000 expended on lunches with journalists |
Not allowable. Company Z has incurred expenditure as principal and not agent. The journalists do not pay for their lunch and the expenditure is not specifically reimbursed by Company X. The exclusion at ITTOIA05/S46 (2) for individuals and partnerships or CTA09/S1299 (2) for corporate entities does not apply - see BIM45030. |
