HMRC Amends Treatment Of Overseas Entertainment

by Jason Gorringe, Tax-News.com, London

04 November 2010

The UK tax authority, HM Revenue and Customs (HMRC) has revised its policy on the treatment of business entertainment provided to oveseas customers in light of a recent ruling by the European Court of Justice in respect of Case-371/07 concerning Danfoss and AstraZeneca.

The UK has blocked the recovery of input tax on business entertainment since the inception of value-added tax (VAT). The terms of the block denied recovery of such input tax except where the business entertainment was provided to an overseas customer. In 1988 UK law was amended to extend the block to cover all business entertainment including that provided to overseas customers. This change was made to align VAT law with changes introduced in relation to direct tax.

In the light of recent ECJ judgments HMRC has concluded that the UK’s block on the recovery of input tax on the business entertainment of overseas clients is inconsistent with EU law.

The government has now said that it intends to amend UK law shortly. In the meantime HMRC will consider claims for previously restricted VAT in respect of the entertainment of overseas customers, as a direct effect of EU law.

The block on recovering input tax on entertainment provided to anyone other than an overseas customer, for example, UK customers and non-UK business contacts who are not customers, remains effective and any VAT incurred on the costs of such entertainment cannot be recovered, HMRC has, as part of literature posted on its site, said.

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