TT148: Potential For VAT Recovery On Business Entertainment

March 23, 2010

A recent opinion from the European Court of Justice (ECJ) has cast doubt on the rule that VAT on business entertainment costs cannot be reclaimed.

The Advocate General (an officer of the court who offers a preliminary opinion) has stated that the Netherlands is not complying with European legislation.

Dutch law blocks VAT claims by reference to the “use” of the goods and services purchased, i.e. business entertaining.

Instead the Advocate General suggests that any restriction should be based on the “nature” of the goods and services, e.g. food and drink. As the UK law is written in the same way as the Dutch law, and an ECJ decision must be applied by all EU member states, the final judgement will be relevant to the UK.

There is no guarantee that the Court will agree with the Advocate General’s preliminary legal opinion but businesses should consider making a protective claim now.

UK VAT law prevents businesses asking for VAT refunds once the cost is more than 4 years old. Therefore, if your business has incurred significant expenditure on business entertainment you should consider speaking to your Barnes Roffe contact with a view to submitting a protective claim.

If a protective claim is made and handled correctly it should lock in an entitlement to a future refund. A delayed claim may fall out of time under the 4 year rule, bearing in mind that the decision may be delayed and HMRC is unlikely to make a quick decision on whether to accept a verdict that it does not like.

Business entertainment includes not only taking clients/contacts out for lunch but also the larger corporate hospitality events such as the launching of new products/premises.


Barnes Roffe Topical Tips:

  • If you consider yourself non-resident, or intend to become non-resident, review your plans immediately to check compliance under the new rules.
  • Ensure you keep detailed records to support any challenge by HMRC.
  • Remember, without records it would be very difficult to resist an argument from HMRC that you are resident.
  • The more visits you plan to make, the greater the care you need to take as each visit will add one day on to the total.
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