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VAT Rules on Entertaining Overseas Customers Changed

HM Revenue & Customs (HMRC) has shifted its position on the VAT treatment of business entertainment provided to overseas customers.

The UK blocked the recovery of input tax (the VAT paid to suppliers) on business entertainment when VAT was introduced in 1973, except where the business entertainment was provided to an overseas customer.

In 1988, UK law was amended to extend the block to include business entertainment provided to overseas customers.

Now, following the European Courts of Justice (ECJ) judgment in the joined case of Danfoss and AstraZeneca, HMRC has decided that the UK block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law.

HMRC says the government intends to amend UK law shortly and in the meantime it will consider claims for previously restricted VAT in respect of the entertainment of overseas customers, subject to the normal four year cap.

The block on recovering input tax on entertainment provided to anyone other than an overseas customer, for example, non-UK business contacts who are not customers, remains in place.

LINK: HMRC guidance

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