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S45 Income Tax (Trading and Other Income) Act 2005, S1298 Corporation Tax Act 2009

‘Quid pro quo� can be goods or services

A full and sufficient quid pro quo (i.e. something of equivalent value given in return) may take the form of services given, rather than cash or goods. So long as a trader can demonstrate that hospitality is given as part of a contractual arrangement in which services of an equivalent value are provided, then you should not treat the hospitality as business entertainment.

This principle was confirmed in the case of Customs and Excise v Kilroy Television Company Ltd [1997] STC 901. »Ê¹ÚÌåÓýapp company was a producer of television programmes, one of which depended upon the presence of a studio audience who had volunteered to take part. Members of the audience were provided with train fares and a buffet meal before the programme began. »Ê¹ÚÌåÓýapp VAT tribunal found that the value of the service provided by the audience by participating in the programme was sufficient to cover the cost of food and drink and so there was no hospitality involved.

»Ê¹ÚÌåÓýapp High Court described this finding as surprising (in view of the fact that there was no contractual obligation to provide the buffet) but not unreasonable. »Ê¹ÚÌåÓýappy said that the correct test was whether the company had ‘provided the buffet in pursuance of a legal obligation in return for which it obtains a proper and sufficient quid pro quo. That quid pro quo may be cash or it may be goods or servicesâ€�.

In any case the question of whether the services provided are a ‘proper and sufficient quid pro quoâ€� is a question of fact. However, a purely nominal service (such as the completion of a questionnaire) is unlikely to provide sufficient value to cover the cost of the hospitality. »Ê¹ÚÌåÓýapp obligation to provide a service must be real. For example, where the entertainment is provided merely in the hope or expectation of a service being provided, the ‘proper and sufficientâ€� level of quid pro quo would be absent.