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Blunt warning about Lavish Business Expenditure and Hospitality

There should be no suggestion that there is a problem with genuine hospitality or promotional expenditure which is reasonable, proportionate and made in good faith as a long established and important part of doing business.

However, the more lavish the hospitality or expenditure (beyond what may be reasonable standards in the particular circumstances), the greater the inference that it is intended to encourage or reward improper performance or influence an official or end client.

The UK is a signatory to a number of international anti-corruption instruments. Also, The Bribery Act 2010 recently came into force on 1 July 2011 and the Serious Fraud Office (“SFO”) is the UK authority for stamping out the corrosive effects of corruption.

In a recent statement published on its website the SFO stated that: “Bona fide hospitality or promotional or other legitimate business expenditure is recognised as an established and important part of doing business. It is also the case, however, that bribes are sometimes disguised as legitimate business expenditure.”

Clearly, dressing something up as hospitality or business expenditure will be scrutinised by other Authorities. If HMRC becomes aware, it may consider that anyone responsible for this sort of behaviour as a potential tax risk and therefore warrants a closer look. HMRC has legitimate powers (Schedule 36 PART 1, section 1) to request information or a document that is “reasonably required” by an Inspector for the purpose of checking the taxpayer's tax position.

Genuine business entertainment/hospitality is one thing, procuring work by inducements is another and this serves as a blunt warning for those navigating the treacherous waters of business development, entertainment and hospitality.