Business entertainment expenses

VAT incurred on goods or services used for a business purpose can be recovered as “input tax”. However, VAT input tax incurred on the provision of “business entertainment” cannot be recovered under a special legal provision. VAT incurred on the expenses for the entertainment of employees can be recovered provided it is for the benefit of employees or is used to improve staff morale.

Entertainment is “business entertainment” when actual entertainment is provided, it is provided free and it is provided to persons who are not employees of the business. Examples of entertainment are provision of food and drink,hotel accommodation, theatre and concert tickets, tickets for sports events or the use of capital assets such as yachts and aircraft for entertaining.

If the entertainment is provided only for directors or partners in a business then any VAT incurred is not recoverable because HMRC consider this does not have a business purpose. However, when directors or partners attend an event which is open to all staff members, then any VAT incurred is recoverable as input tax.

Trying to judge whether VAT is recoverable on entertainment expenses is a complex area and RKG Consulting will be pleased to assist.