VAT on client entertainment - can I claim that back?

VAT goes far beyond calculating the extra 20% on a purchase, and when it comes to claiming back client expenses it can get quite tricky. We’ve put together a brief overview to help you get a better understanding of what you can and can’t claim for.

What is considered entertainment?

In order to easily identify entertainment expenses we have provided a list of rules as featured on the HMRC website. Entertainment is defined as any one of the following:

provision of  food and drink
provision of  accommodation (such as in hotels)
provision of  theatre and concert tickets
entry to sporting events and facilities
entry to clubs and nightclubs
use of capital assets such as yachts and aircraft for the purpose of entertaining.

As long as the entertainment is provided for no charge to non-employees, it is business entertainment. 

Who counts as a client?

A client can be anyone who is ‘not an employee of your business’; according to HMRC this can include:

pensioners and former employees
job applicants and interviewees, and
shareholders (who are not also employees)

Of course there are some exceptions: self-employed contractors who receive similar subsistence benefits to your employees can also be treated as employees along with temporary or casual staff.

What can I claim back?

Now that you are sure your expenses fit all of the criteria and can be defined as client entertainment we can address the question: what can I claim back?

While VAT incurred can usually be offset against the VAT collected on behalf of HMRC, this is not the case for client entertainment expenses. ITC Contracting list the following as expenses which cannot be claimed back: ‘entertaining customers, clients or suppliers, and providing client hospitality at events.’

So, recovery on VAT is blocked, even when employees act as hosts, but there are three exceptions to the rule:

• where there is a contractual obligation to provide the hospitality, such as a conference or meeting where an admission fee is charged or
• where an event is a mixture of employee welfare and entertaining clients or prospective clients.  A golf day for example, open to employees and clients, where some of the employees do not act as hosts, should be shared between recoverable and non-recoverable VAT or
• where you pay to sponsor an event, it is possible to divide VAT on costs between entertainment (not recoverable) and advertising (recoverable), but usually HMRC insist that it is not possible to separate entertainment from marketing or promotion.

To get a more in depth understanding of client entertainment costs or if you have any questions relating to this post you can contact James Cowper Kreston on info@jamescowper.co.uk or by filling out the form on our website.