Value Added Tax

Input tax ― staff and business entertainment

Produced by Tolley
  • 20 Apr 2022 12:24

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Input tax ― staff and business entertainment
  • Basics of input tax recovery on entertainment
  • The scope of the input tax block on business entertainment
  • Common examples of business entertainment
  • Entertainment provided via in-house catering
  • Common examples confused for business entertainment
  • Staff entertainment and VAT recovery
  • Entertainment of both staff and non-staff
  • The exception for entertaining overseas customers
  • Practical points ― input tax and entertainment

Input tax ― staff and business entertainment

This guidance note looks at the rules for recovering VAT on entertainment. In particular, it consider the scope of the input tax ‘block’ for business entertainment.

For an overview of input tax more broadly, see the Input tax ― overview guidance note.

For in-depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.446.

Basics of input tax recovery on entertainment

There is a specific input tax block on goods and services used for ‘business entertainment’. The effect of this block is that VAT cannot be recovered even if the other normal conditions for input tax recovery are satisfied (as set out in the Input tax ― conditions for recovering VAT guidance note). There is an exception to the block for the entertainment of overseas customers. VAT is technically recoverable in relation to such business entertainment, but subject to quite stringent conditions (at least in HMRC’s view).

Determining when the input tax block applies will not always be a straight forward exercise and confusion and disputes may arise when looking at particular items of expenditure.

At a high level, the input tax block does not extend to the entertainment of staff and VAT is therefore recoverable on this staff entertainment expenditure (subject to some provisos and the normal input tax rules).

Because of the distinction between entertainment on which VAT is blocked and entertainment on which it may be recovered, it is important that accounting systems are set up to

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