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United Kingdom updated guidance notice on VAT treatment of business entertainment
The United Kingdom (UK) has updated its guidance on the VAT treatment of business entertainment. The revised guidance provides a comprehensive overview of how VAT charged on business entertainment should be handled. It clearly distinguishes between business entertainment and employee entertainment, outlining the specific circumstances under which input tax may or may not be recoverable.
The key aspects of the guidance have been discussed below:
(a) Definition of business entertainment
Entertainment provided free of charge to persons who are not employees is treated as business entertainment.
(b) Definition of ‘Entertainment’
‘Entertainment’ is defined as hospitality of any kind. It includes the provision of food and drink, accommodation (such as hotels), theatre and concert tickets, entry to sporting events and facilities, entry to clubs and nightclubs, and the use of capital assets, such as yachts and aircraft, for entertaining.
(c) Employees vs Non-employees
For this purpose, employees include directors, management personnel, certain self-employed individuals treated as employees for subsistence purposes, helpers, stewards and essential event staff. Former employees, pensioners, job applicants, interviewees, and non-employee shareholders are not regarded as employees.
(d) Business entertainment provided to overseas customers
VAT incurred on the entertainment of overseas customers may be recoverable when incurred for business purposes, provided it is reasonable in scale and character. However, an output tax charge will apply if there is a ‘private benefit’ to the individual enjoying the entertainment, which will offset any recoverable input tax.
There is usually a private benefit when entertainment is provided. However, in cases where the expenditure is necessary and for strict business purposes, the private use may be ignored. Hospitality that is provided solely out of politeness, expectation, or to improve relationships is not considered to be for strict business purposes.
(e) Input tax recovery
Input VAT on entertainment provided to UK business contacts and non-customer overseas business contacts is not recoverable. Separate rules apply to overseas customers.
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