»Ê¹ÚÌåÓýapp

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

This example relates to BIM45060 and BIM45061.

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. »Ê¹ÚÌåÓýapp 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.

»Ê¹ÚÌåÓýapp 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. »Ê¹ÚÌåÓýapp journalists do not pay for their lunch and the expenditure is not specifically reimbursed by Company X. »Ê¹ÚÌåÓýapp expense is therefore outside the exclusion at S46(2) ITTOIA 2005 for unincorporated businesses and S1299(2) CTA 2009 for companies (see BIM45061)