VAT recovery on business entertainment has been blocked since intro. (1973). More recently, VAT Input Tax Order 1992, Art. 5 disallows the right to recover input VAT as “entertainment, including hospitality of any kind provided by a taxable person in connection with a business carried on by him.”. Business entertainment costs given away may, i.e. for free to the participant include categories:

  • Food and drink
  • Accommodation
  • Event tickets or entrance (concerts, sports, theatre, etc.)
  • Dance or nightclubs
  • Other luxury facilities, aircraft, yachts, etc.

Case law has illustrated what is meant by “freely given”:

  • BA v HMRC 1990 STC 643, ruled that the ticket price for a flight covered both the flight and in-flight hospitality
  • DPA (Market Research) Ltd [1997] BVC 4071, further allowed VAT recovery on food and drink in consideration as “fair exchange for the views of the participants”
  • Kilroy Television Co Ltd. [1997] BVC 422, also allowed VAT recovery, “in return for real services by the participants”

This shows that really “free” is probably “gratuitous” and VAT is deductible only where there is consideration.

Also, Thorn EMI 1995 STC (674) showed it can be apportioned. Where hospitality chalets were often used to carry out confidential client discussions, but also on occasion other business purposes.

However, there still has to be a genuine consideration. The more recent Aitmatov Academy TC/2018/08143 case where Kazakh literature was promoted with free drinks at the House of Lords failed because the attendees were not even potential customers and therefore the inputs could not be linked to taxable outputs.

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