V3.446 Business entertainment

An order made under VATA 1994 s 25(7) provides that tax charged on any goods or services is excluded from credit1 if2

  1.  

    (1)     the tax is charged on—

  2.  
    1.  

      (a)     any goods or services supplied to a taxable person;

    2.  

      (b)     any goods acquired from another EU member state by a taxable person; or

    3.  

      (c)     any goods imported from a third country by a taxable person; and

  3.  

    (2)     the goods or services in question are used or to be used by the taxable person for the purposes of business entertainment.

For HMRC's views on the restriction of credit for input tax in respect of business entertainment, see Notice 700/65/123.

Definition

Business entertainment means entertainment (including hospitality of any kind) provided by a taxable person in connection with a business carried on by him4. Entertainment is provided for a person if it is arranged with that person in mind5. “Entertainment” and “hospitality” bear their ordinary and natural meaning6 and are not inconsistent with an intention to secure a business advantage, such as encouraging customer loyalty and building up goodwill7, or to encourage attendance8. The essence of entertainment is that it is provided free to the recipient9. Hospitality provided under reciprocal arrangements in accordance with an obligation imposed by a third party10, or in accordance with a contract between the parties directly concerned, is not provided free to the recipient. In such cases, however, an output tax charge may arise11. In a tribunal decision12 it was found that an organiser of sponsored

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial