Last month, we outlined the details of the tax implications on festive entertaining. This time we’re looking at how to manage the VAT around business entertaining. It can certainly be a headache to work out what qualifies as business entertainment and how it differs from employee and client entertainment.
VAT can only be reclaimed by businesses that are VAT registered and not those who use the VAT Flat Rate Scheme, except for some capital assets. VAT can only be claimed on the cost of entertaining employees who are on the company payroll – not former employees, subcontractors, shareholders or yourself as a sole trader. The VAT paid on business entertaining of these people cannot be claimed back.
The VAT on business entertainment has remained at 20% for some time but keep an eye on the VAT charges of other countries as they can vary and the rules may have changed since Brexit.
Business entertainment
Any hospitality provided free of charge to people who are not employees is classed as ‘business entertainment’. This includes food and drink, accommodation, theatre/concert tickets, sports events, nightclubs and the use of capital assets such as yachts and aircraft.
If a business holds an event with a mix of employees and spouses, clients, subcontractors, etc. the VAT can be claimed back on the employee entertaining element only.
A business with only directors or partners?
When a business has no employees, just one or more director or partner, the cost of entertainment does not qualify for VAT deduction. However, if the directors or partners are travelling away from their place of work, the VAT paid for travel, accommodation and meals can be claimed back.
Entertaining overseas customers
VAT can be deducted where the entertaining is for business purposes and is ‘reasonable in scale’. The details of the overseas customer, the type of expense and VAT receipts will be required.
How to reclaim the VAT on entertainment
Accounting software can really help to keep accurate records of VAT paid on entertaining and retaining receipts in digital form can be a big time-saver. VAT receipts should be kept for four years in case of an HMRC audit.
As with most VAT rules, there are some confusing areas that a tax expert can help with, to make sure that you reclaim the correct VAT amount and don’t lose money or incur penalties. Find out more from the friendly, approachable experts at CRM on 01865 379272.
