The 12 VAT rules of Christmas – Day 9
On the ninth day of Christmas….
- Christmas is a great time to catch up friends and family for dinner. When you’ve been slaving over a hot stove for a few days, it’s tempting to indulge in a takeaway, but be warned this will carry VAT. Better to cook something at home. Looks like it’s turkey curry after all then!
- Charities and VAT-exempt businesses, which are unable to recover VAT costs on purchases, will be hardest hit. Be aware that your budgets will stretch 2.5% less far in 2011 than they did this year. If you’re considering making a capital investment, you may wish to consider bringing the purchase forward to benefit from the 17.5% rate.
- If you are one of the larger charities and have a shop, encourage and sell donated goods, which are VAT free. Goods that are bought in for resale will be subject to VAT; but don’t forget that books and children’s clothing are VAT free!
VAT on business entertainment of overseas customers now recoverable
Following the ECJ judgement in the joined case of Danfoss and AstraZeneca, HMRC have announced some changes in the tax treatment of business entertainment of overseas customers.
Subject to evidence of the details of the overseas customers and the type of expenditure, they will now allow the VAT paid out on business entertainment to be reclaimed.
In order for the VAT on entertainment costs to be recovered HMRC expect the business to meet two tests: a necessity test and a strict business purpose test. If the tests are not met then any vat recovery is subject to an equal output VAT payment as a private use charge. The tests are designed to ensure that the entertainment is only to enable the smooth running of the business, i.e. food provision at business meetings, and that the element of private benefit is incidental to the provision of the underlying services or goods by the business i.e. paying for transportation to enable attendance at remote sites.
Clearly as a result of these changes it is now possible to claim back vat incurred on the costs of entertaining overseas business customers, subject to the normal four year cap, and the usual evidence will be required to support any Input Tax claim.