Changes to reclaiming VAT on entertaining

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Changes to reclaiming VAT on entertaining


As a general rule input VAT cannot be reclaimed on entertaining customers; the VAT element of entertaining can only be claimed when it relates to staff. 


However following a European Court of Justice case (Just in case it comes up in a pub quiz - Julius Fillibeck Sohne (C-258/95) and Danfoss and AstraZeneca (C-371/07)) HMRC has concluded that the input VAT block on entertaining overseas is inconsistent with EU law, and therefore VAT can now be reclaimed on these expenses.  In addition HMRC is considering backdated claims for previously restricted input VAT on entertaining overseas customers.


An overseas customer is any customer not ordinarily resident or carrying on a business in the UK (including the isle of man).  Some examples of business entertainment given by HMRC include:

  • The cost of providing food and drink
  • The cost of providing free accommodation, for example in hotels
  • The cost of theatre and concert tickets
  • Taking clients to sporting events and facilities
  • Taking clients to clubs and nightclubs
  • Using yachts and aircraft to entertain


There are some restrictions on input VAT that can be reclaimed on entertaining overseas customers; the entertaining must be reasonable in scale and character and the person being entertained must be a customer and not just a business contact.  It’s also worth noting that even though input VAT may not be blocked, entertaining is not an allowable deduction for corporation tax purposes.


Even where input VAT is blocked on customer entertaining it can still be worthwhile paying for it from the company as it saves on the personal tax you would otherwise pay on withdrawing the money to pay the costs personally.


If you have a query regarding VAT on customer entertaining then we’re here to help.
Contact  us here.