Can i claim vat on entertaining
You can reclaim VAT on the cost of entertaining an overseas customer of the business providing, in HMRC's words, it is "of a kind and on a scale which is reasonable". This effectively cancels a proportion, or all, of the VAT that has been reclaimed. HMRC will not permit a claim if the entertaining is part of a corporate event, such as a golf day, day at the races or trip to some other type of event. In practical terms, it may be difficult to extend this concession beyond the provision of sandwiches or maybe takeaway pizzas at a push and soft drinks at a business meeting.
When recovering VAT on overseas customers, additional records should be kept. You will need to show that they are an overseas customer and do not have a business in the UK. HMRC take a strict view on entertainment of overseas customers, believing that unless the entertainment is minor, necessary, and solely for business purposes, there is likely to be a private benefit provided to the recipient and the input VAT cannot be recovered.
VAT is also recoverable for some staff entertainment. If staff entertainment is undertaken to improve morale or offer rewards for good work, then it is considered as being incurred for a business purpose and the VAT is recoverable. The input VAT associated with directors or partners who attend such an event is also recoverable. HMRC say that the cost of providing entertainment only to directors or partners does not qualify for tax relief or a VAT deduction.
The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and to subcontractors who are part of the team and treated like employees.
So if you want to have a celebration meal for two directors who are the only employees of the business, make sure that the meal takes place away from the usual place of work and as part of a business trip which the directors would have made anyway, for example to see a client!
This is a grey area so if you are not sure whether you can claim tax relief or reclaim VAT on a particular cost, please give us a call on for free advice our experts are always happy to help! Blog Business Advice Tax. VAT on business entertainment — can I claim it back? Outsourced ACC Ltd. Find out more about claiming expenses in FreeAgent. The cost of entertaining staff as a reward for good work, or to keep up morale, is classed as employee entertainment , for which you can both claim tax relief and reclaim any VAT you pay.
For tax relief and VAT reclaim to be allowed, the purpose of the event has to be to entertain employees. If there's an event with a mixed group and the purpose of the event is to entertain everyone equally, then you can claim back the VAT on the cost of entertaining your employees only. For example, if you have a staff Christmas party and allow your employees to bring a friend, you'd have to work out the amount of VAT you paid on the cost of entertaining your employees and only claim that.
You can't claim the VAT on the cost of entertaining their friends. If your business has one or more directors or partners, but no other employees, then the issue becomes more difficult.
The rules for tax relief would mirror this. This also applies to employees, sole traders and to subcontractors who are part of the team and treated like employees. If you are not sure whether you can claim tax relief or reclaim VAT on a particular cost, you should seek professional advice from an accountant who will be able to advise you.
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