VAT incurred on overseas business entertaining
HMRC have at last announced a change in policy regarding VAT incurred on overseas business entertaining.
HMRC agreed this change was required some 18 months ago following from European Court decisions. These related to the efforts of Danfoss and AstraZeneca to reclaim VAT when entertaining business customers from overseas.
HMRC’s new guidance is contained in Revenue & Customs Brief 44/10. The UK law will soon be changed and taxpayers will be able to include claims for VAT on the cost of entertaining overseas customers on future VAT returns. HMRC appear to have taken a strict view on the type of expenditure on which a VAT deduction is permitted. Only basic hospitality such as sandwiches in the office or a basic lunch out of the office where the lunch is strictly for business purposes will be eligible for a VAT deduction. Evening meals and golf days, for example, will remain ineligible.
Those businesses that submitted claims in time for the period 1 August 1988 – 30 April 1997 will need to evidence that the hospitality provided was strictly for business purposes. Those that did not get claims in on time can only claim for the last 4 years, provided they have the necessary records on file.
The claim for the input VAT must be made as a voluntary disclosure to HMRC, making it clear that the error (in not reclaiming the VAT when it was due) was made because of the HMRC practice of blocking the input tax on entertaining.
It is important to note that the scope of this change is limited to entertaining overseas customers. The VAT incurred by reference to most general entertaining costs will therefore continue to be irrecoverable. And where the costs do relate to overseas clients, HMRC are expected to seek confirmation as to any output VAT that may due, in respect of ‘private use’ elements of the costs. So claims are unlikely to be straight forward. Nevertheless, for some businesses, this could be an opportunity to reclaim significant amounts of VAT, and to reduce costs going forwards.