Entitlement to claim input tax on expenditure on business entertainment provided to overseas clients

HM Revenue & Customs (HMRC) are currently reviewing the input tax treatment of business entertainment provided to overseas clients in the light of a recent European Court of Justice (ECJ) judgment in the joined case of Danfoss and AstraZeneca (Case-371/07).

The case concerned a Danish law provision, which excluded certain types of expenditure from the right to deduct VAT, and whether it was still effective, since although, it had been introduced before the Sixth Directive came into force, it had not been applied in practice.

Businesses may wish to consider the relevant time limits applying to potential claims and to submit claims, together with supporting evidence, in order to protect their position, pending HMRC’s statement of their position. Businesses should note that, in any event, any claim would be confined to entertainment which is of a kind and on a scale that is reasonable. Any claims submitted should, as a minimum, include:

• Details of the overseas clients (NB overseas suppliers are not covered).
• The type of expenditure (eg meal, drinks, sporting event etc).
• The amount of VAT claimed.
• Evidence to support the fact that the VAT had not previously been deducted.

HMRC do not consider that this decision has any implications for the input tax block on expenditure on entertaining UK business clients. Nor does it have any impact on input tax that can be claimed on expenditure on meals and other entertainment provided to employees - business can continue to claim this input tax subject to the normal rules.