For VAT purposes, “entertainment” is described as the provision of hospitality of any kind. The costs regarded as entertainment or the provision of hospitality come in different forms like:
These can be the cost of entertaining staff as:
VAT is recoverable for some staff entertainment when an employer provides entertainment for the benefit of employees:
When these conditions are met, the VAT incurred on entertainment for employees is input tax and is recoverable under the business entertainment rules.
Nonetheless, there are two exceptions to the general rule where:
It is important to remember that employee and director’s subsistence does not count as employee entertainment.
VAT claim on staff business entertainment can be restricted if:
If the entertainment is provided only for directors or partners of a business, the VAT incurred is not input tax. Hence, the VAT cannot, therefore, be recovered.
The restriction on the recovery of input tax is not changed if some of the employees of the business are also entertained.
Where the costs are incurred for the sole purpose of entertaining a non-employee, the tax is input tax but is blocked under the client entertainment rules.
None of the input tax can also be claimed when employees act as hosts to non-employees and help entertain the non-employee.
You can only recover as input tax the VAT you incur on entertaining your employees. The portion of the input tax incurred in entertaining others is blocked under the business entertainment rules.
An employee is:
However, these people are not employees:
If the employee is working away from their usual place of business and incurs food and travel expenses, the input tax on their meal can be dealt with as subsistence. However, input tax cannot be claimed if the business trip is made solely for business entertainment. It can only be claimed on the employee’s meal if the business entertainment is secondary to the business carried out.
If you are unsure whether you can claim tax relief or reclaim VAT on a particular cost, you should seek professional advice from an accountant.