Where an employer provides entertainment such as staff parties, team building exercises, staff outings and similar events for the benefit of employees to reward them for good work or to maintain and improve staff morale, they are not blocked from input tax recovery under the business entertainment rules, as it provides the event wholly for business purposes.
However, there are 2 exceptions to the general rule. These are where:
The entertainment is provided only for directors or partners of a business, the VAT incurred cannot be recovered as the goods or services purchased are not used for a business purpose.
However, where directors and partners of the business attend staff parties together with other employees, the vat is not blocked from recovery.
Employees acting as hosts to non-employees incur costs that are for the sole purpose of entertaining a non-employee, the tax is blocked under the business entertainment rules.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.