Entertaining and VAT

Are entertaining and VAT causing you a headache?

Entertaining and VAT are two words we rarely consider natural bedfellows, however when it comes to running your business, they can cause a particularly nasty headache.

Whilst we all enjoy getting out of the office from time to time and treating ourselves to a working lunch often extending the invitation to our favourite customers and suppliers, there can be some subsequent confusion after the high has worn off and the VAT return is looming.

“Business entertaining” covers food and drink, accommodation, tickets to events (such as the theatre or sports matches), but not business gifts (that’s a whole different kettle of fish). In the right circumstances, input VAT can be reclaimed. But there are some general rules you need to consider to ensure that your business stays on the right side of our besties, HMRC.

Broadly, any input VAT associated with the entertaining of customers, clients or suppliers is usually blocked from reclamation. HMRC consider business entertainment to be that which is provided to a person or people who aren’t employees and that is provided at no cost to the attendees. So when planning a golf day or track day excursion to spoil your loyal customers and suppliers, it might be worth considering sending them a small bill.     

Rewarding your hardworking employees can be vital tool in any business’s arsenal and luckily this is reflected by the VAT treatment. Input VAT can be reclaimed on the cost of entertaining current employees. HMRC aren’t so lenient however when it comes to Company Directors going out on a jolly without any of their underlings, and should they venture out on their own for a sneaky snack, will find that any input VAT is unrecoverable.      

Things get really interesting if you decide to entertain a group of people split between employees, their friends and partners, and/or customers. As above, the proportion of input VAT relating to non-employees is blocked, however the treatment of the employee-related input VAT depends on the role they are playing in the event in question. Where employees have been invited along purely out of the goodness of their boss’s heart for a relaxing afternoon out at the races, input VAT is available for reclaiming.  If instead, the employee is expected to play the role of ‘host’ to clients or suppliers, then the input VAT find itself again becoming blocked. 

There is however some light at the end of the tunnel. If you’re lucky enough to receive an invitation to a networking event, this is deemed as an allowable business expense, so you can claim both VAT and Corporation Tax relief. Networking is considered a form of advertising, as well as a way to build valuable business relationships. As long as there is full clarity that the event is solely for promoting your business, products or services, this should not present any problems.

If you need further help with Entertaining and VAT

If you need more advice on what tax relief you can claim for business entertaining, then please get in touch by emailing: compliance@edge-tax.com or fill in the contact form on our compliance page

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Entertaining and VAT