Businesses gain tax advantage from HMRC decision on entertaining expenses

Businesses throughout the UK stand to benefit from HMRC’s change of position on claiming input tax for entertaining expenses. Companies will now be able to claim the input tax incurred when entertaining overseas customers, increasing the cumulative amount of tax that can be subtracted from their final VAT bill. The ruling follows the high profile Danfoss and Astra Zeneca business expenses case in the European Court of Justice, and applies primarily to business lunches and refreshments.

“HMRC’s decision on entertaining expenses is good news for British businesses,” comments Owen Kyffin, Tax partner, Whitley Stimpson. “The change in input tax law allows companies to recover a proportion of the cost associated with entertaining overseas customers, which can often be significant. Business owners should take particular care to ensure that they benefit from the new ruling by providing the requisite evidence to support their input tax claims.” 

Companies have waited with anticipation to understand the implications of the new ruling since HMRC officials first concluded that the UK’s 24-year block on recovering entertaining expenses relating to overseas clients was inconsistent with EU law. In order to qualify, businesses will be required to supply details of their overseas customers, clarify the type of expenditure and provide evidence that the VAT incurred has not previously been deducted.

Recovering input tax on entertaining expenses will be permitted in two specific scenarios: provision of refreshments for on site meetings, where entertaining facilitates the efficient running of a meeting, and purchase of basic refreshments for external meetings or events. Excessive expenditure or corporate hospitality days are not deemed to have a strict business purpose and therefore input tax deduction for entertaining expenses of this nature will not be accepted.

“As with the majority of business tax matters, gaining a full comprehension of the precise conditions of new legislation is paramount in terms of ensuring that business owners achieve the maximum benefit,” concludes Owen. “Understanding what is and isn’t permitted allows companies to navigate complex tax recovery claims more efficiently.”

Whitley Stimpson has provided sound tax advice to individuals and businesses for more than 80 years. For further information or to book an appointment with one of Whitley Stimpson’s tax specialists, please visit www.whitleystimpson.co.uk or call 01295 270200