However, VAT on business entertaining is not wholly and necessarily incurred for the purpose of the business and cannot be reclaimed in any circumstances.
Is input vat on entertaining overseas customer not the one exception to the rule though in that it isn't always automatically blocked? (isn't there always one exception?)
The following advise in 700/65 seems to suggest input vat may be claimed presuming the amounts are reasonable - it is possible i may be missing something in this regard though.
2. Business entertainment
2.1 Definition of ‘business entertainment’
Business entertainment provided to ‘overseas customers’ is not blocked - see paragraph 2.6.
2.6 Business entertainment provided to overseas customers
The term ‘overseas customer’ means any customer not ordinarily resident or carrying on a business in the UK, including the Isle of Man.
VAT incurred on the entertainment of overseas customers may be recoverable when incurred for the purpose of the business if it’s reasonable in scale and character. However, there will be an output tax charge if there is a ‘private benefit’ to the individual enjoying the entertainment which will cancel out any recoverable input tax.
There is usually a private benefit when business entertainment is provided. However, in cases where the expenditure is necessary and for strict business purposes the private use may be ignored. Hospitality provided because it would be polite, because it’s expected, or because it would improve relationships is not for strict business purposes.