Claiming VAT on Entertainment for International Customers expenses

Are business entertainment expenses tax deductible?

VAT incurred on goods or services used for business purposes can be recovered from HMRC as input tax. However, the basic rule is that you cannot recover the input tax incurred on the provision of business entertainment expenses. Nonetheless, the rules are complex, and VAT can be reclaimed under these two circumstances: 

• Employee entertainment (read more about it on our blog). 
• Business entertainment is provided to overseas customers. 

VAT treatment of Business entertainment provided to overseas (foreign)  customers 

An ‘overseas customer’ is any customer not ordinarily resident or carrying on a business in the UK. 

VAT incurred on the entertainment of overseas customers may be recoverable when: 

• It’s necessary and for strictly business purposes. 
• It is reasonable in scale and character. 

However, if there is a ‘private benefit’ to the individual enjoying the entertainment – there will be an output tax charge which will cancel out any recoverable input tax. 

A ‘private benefit’ arises when there is NO necessity for the business to provide entertainment or there is NO strict business purpose behind it, such as facilitation of a meeting. It becomes appropriate to apply a private use charge to entertainment provided to overseas customers under these circumstances. 

If the entertainment you provide triggers a private use charge, you should treat the VAT incurred as a non-deductible expense instead of claiming a deduction and offsetting this with an output tax charge.  

Examples of how to treat business entertainment provided to foreign customers

You can use these three HMRC scenarios to know the correct VAT treatment of any expenditure incurred on entertaining overseas customers. 

Meetings in your office

When you entertain overseas customers in your staff canteen or similar, the VAT on such expenditure will be recoverable, and no charge to reflect the private use will arise. HMRC takes the view that any private benefit derived by your overseas customer is an accessory to the needs of your business.  

External meetings/events

If you cannot host meetings in the office, you can still determine if your input tax is recoverable or if there is a charge to output tax under the private use charge. Provision of basic refreshments in external meetings is treated as if it were supplied by your in-house canteen. However, where the provision goes beyond providing basic food and refreshment, you should not recover any input tax. Contrarily, account for output tax under the private use charge instead. 

Corporate hospitality events

HMRC will generally not allow VAT deduction on these events. They will require you to account for output tax because such events are unlikely to have a strict business purpose and be necessary for the business to make its supplies. Examples of these general entertainment and hospitality are: 

• Golf days  
• Track days  
• Trips to sporting events  
• Evening meals  
• Trips to nightclubs. 

Evidence required when making VAT claims

As a minimum, your claims should be supported by the following evidence: 

• Details of the overseas customers. 
• Evidence that VAT has been incurred and has not been deducted previously. 
• The type of expenditure, for example, meals to support business meetings, etc. 
• The amount of VAT claimed. 
• If required for historical claims, evidence of the type of business entertainment you usually exclude from recovery by reference to recently rendered tax periods. 

Making VAT Claims: Time limits 

You may reclaim any input VAT incurred on the costs of entertaining overseas business customers in the previous four years.  

Also, VAT incurred in future tax periods can be recovered the usual way. 

Need help with Entertaining overseas customers VAT claims? 

It is important to remember that if entertaining foreign customers does not meet HMRC’s definition of ‘reasonable’, you can avoid reclaiming it, rather than reclaiming the VAT and offsetting it with an output tax charge.  

Feel free to contact us for more information and help with the VAT treatment of Business entertainment provided to overseas customers.