Shall VAT be charged on entertaining potential clients from Korea

[mehranmichail]

Hi can I any one guide
A UK company incurs expenses on entertaining clients/customers from korea. Like expenses on meal, museum, boating, london eye. They company is providing consultancy services. Company wants to claim VAT on these expenses and wants to raise invoice against these and charge VAT on it.
1. Can the company claim VAT on these expenses?
2. Under place of supply, do they can charge UK VAT considering the clients are Korean business with no office in UK.
Thanks...

[jerome.lane]

I assume the Korean customers are being entertained in the UK and therefore where they are from has no effect.
If the entertaining is happening in Korea or somewhere else in the world, then UK VAT shouldn't apply and you'd have to look at local VAT, good sales tax or the equivalent.
If the company incurs VAT and recharges the expense, then the expense effectively becomes a cost of sales and so the VAT can be reclaimed.
However, VAT on business entertaining is not wholly and necessarily incurred for the purpose of the business and cannot be reclaimed in any circumstances.
A business can only reclaim VAT on entertaining employees which can then have benefit in kind repercussions too.

[mehranmichail]

Thanks a lot for guidance.
I was unsure, I thought under general rules of place of supply, vat is paid, in case of business customer, where the customer belongs. I thought the customer belonged to Korea as they were here in UK on business trip and had no business establishment's or fixed establishment nor UK residence. I thought use and enjoyment rules does not apply in these type of service. I thought under use and enjoyment rules, services covered are most digital.

[robbob]

jerome.lane

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.


https://www.gov.uk/guidance/business-entertainment-and-vat-notice-70065

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.