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Markel Tax

13 May 2019

VAT Recovery if Business Entertainment is recharged?

Question: My client is a UK sales representative. A UK based customer wants him to entertain their prospective clients to secure future trade with them. My client will take them for a before charging these costs plus his own time onto the UK based client. My client wants to recover the VAT on these meals and sports tickets. Is this business entertainment and therefore blocked?

Answer: Business entertainment by definition is when entertainment is given to someone who is not an employee of your business and it is provided for free. I agree that entertainment is being provided by your client (as defined in para 2.2 of VAT Notice 700/65) and it is given away to someone who is not an employee of your client however it is not being given away for free by your client. Your client is being told to charge the expenses incurred onto the end UK client in addition to your client’s charge for their own time. Therefore, providing the invoices your client raises to the end UK client clearly show these entertainment amounts being charged and are not ‘hidden’ in your client’s own charge out rate, it is our view that the VAT incurred to provide this entertainment is deductible by your client. When the end UK client receives your client’s invoice however, with UK VAT being charged on both elements, they will not be able claim the VAT relating to the entertaining provided by your client as the end UK client has given this away for free therefore the input tax block applies as per para 2.1 of VAT Notice 700/65.
Please be mindful however that should your client provide any entertainment of a type that would fall with the Tour Operator Margin Scheme (TOMS) (for e.g. items such as accommodation, passenger transport, trips or excursions or services of tour guides), your client would need to apply TOMS methodology to work out what VAT it can recover and what VAT it must account for on its fees. Further advice should be sought in this scenario.

Here to help: With more than 60 highly skilled tax and funding specialists, advising on over 2,000 complex tax issues each year, we work with your practice to provide up to date, practical solutions. If you have a client in a similar situation, or have a tax question of your own, we're here to help on 0345 223 2727. Or to find out more about our services, email taxmarketinguk@markel.com.
Tagged Ask Markel Value added tax (VAT) services