Basically VAT input tax cannot be reclaimed on business entertaining expenses unless it relates to employees of the business. So there is no problem claiming input tax on the cost of the annual staff Christmas party but there is definitely a problem with claiming input tax on the cost of taking ten customers to Ascot for a good day out at the races.
A recent European court case, the Danfoss Case may open the door for an extension of claims regarding business entertaining to include:
• cost of directors business meetings including related accommodation expenses
• entertaining overseas business clients; and
• catering provided at working meetings for non-employees
At present the UK tax authorities are considering how this case impacts UK VAT law and practice. If they do accept the judgement, businesses will have an opportunity to make a three year, back dated claim.
If your business has incurred expenditure in any of the 3 areas set out above we recommend that you lodge a formal protective claim with HMRC and from now on keep a detailed record of such expenditures for further, possible claims.
Please call if you would like more information.