Commentary

RCB/44/10 VAT — change in the tax treatment of business entertainment of overseas customers

Part V16 Forms and other HMRC material

RCB/44/10 VAT — change in the tax treatment of business entertainment of overseas customers

RCB/44/10 VAT — change in the tax treatment of business entertainment of overseas customers

Revenue & Customs Brief, Issue 44. 2 November 2010

HM Revenue & Customs (HMRC) has reviewed its policy on the treatment of business entertainment provided to overseas customers in the light of the European Courts of Justice (ECJ) judgment in the joined case of Danfoss and Astra Zeneca (Case-371/07).

The UK position on the entertainment of overseas customers

The UK has blocked the recovery of input tax on business entertainment since the inception of VAT. The terms of the block denied recovery of such input tax except where the business entertainment was provided to an overseas customer. In 1988 UK law was amended to extend the block to cover all business entertainment including that provided to overseas customers. This change was made to align VAT law with changes introduced in relation to direct tax.

In the light of recent ECJ judgments HMRC has concluded that the UK's block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law. The Government intends to amend UK law shortly. In the meantime HMRC will consider claims for previously restricted VAT in respect of the entertainment of overseas customers, as a direct effect of EU law.

The block on recovering input tax on entertainment provided to anyone other than an overseas customer, for example, UK customers and non-UK business contacts who are not customers, remains effective and any VAT incurred on the costs of such entertainment

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