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HMRC internal manual

VAT Input Tax

Specific issues: when input tax can be recovered on entertainment costs

There are times when it looks as if a business is providing free hospitality but it can claim input tax. In general this applies where:

  • the business provides the hospitality as part of an onward taxable supply;
  • the business has to provide hospitality.

Here are some examples of when a business can claim input tax on what looks like business entertainment:

  • entertainment provided by clubs and associations which is available to all eligible members without specific charge - this is part of the benefits received in return for payment of the membership subscription
  • free drinks given to customers paying for meals at a restaurant or similar establishment - amounts paid by customers are considered to be inclusive of any drinks given freely
  • where an airline incurs tax on catering or accommodation for delayed passengers - this is not the provision of entertainment (see British Airways at VIT64300)
  • free wine or beer tasting events for trade customers or journalists which allow sampling but not drinking
  • a free glass of beer or whisky following a brewery or distillery tour
  • free meals for coach drivers at motorway service stations - these are business gifts on which output tax may be due (see VATSC Supply and consideration);
  • entertainment provided by local authorities at civic functions - this is not business entertainment because the function is a non-business activity. (See Notice 749 Local authorities and similar bodies);
  • entertainment of a non-personal nature provided freely by a store or similar establishment to the general public - for example a business could claim tax on the hire of circus performers or musicians to attract custom or to advertise its premises. This does not apply to promotional events where customers attend by invitation, say where a motor dealer invites customers to the launch of a new car and provides them with free hospitality. We do not accept that wine merchants, publicans or restaurateurs can claim input tax when they provide free drink during “in store” events (except at trade wine tasting events).
  • sports clubs often provide free hospitality to visiting teams because the visitors will do the same when they host the return fixture. For VAT purposes the agreement to provide hospitality in return amounts to a supply and no output tax is due. Input tax may be deducted by the team that provides the entertainment.
  • recognised representative sporting bodies providing meals and accommodation to amateur sports persons chosen to represent that body in competition is not business entertainment. Any VAT incurred by the representative sporting body is recoverable.