Andrew Needham looks at the recovery of VAT on business entertainment.
The recovery of VAT on business entertainment is normally blocked by legislation, but there are some circumstances when VAT recovery is permitted. Business entertainment is considered to be the entertainment of people who are not employees of the business, for example, customers or business contacts. In most cases, businesses can recover the VAT on staff entertainment as it is a legitimate business expense.
When is entertainment not entertainment
If a business entertains people who are not employees but makes a charge for it or is contractually obliged to do so, it does not count as entertainment, and input tax on related costs can be recovered.
For example, if staff contribute to the cost of entertaining their partners, the input tax on the partners