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HM Revenue & Customs has announced a change in its policy regarding business entertaining, in light of cases heard before the European Courts.

Danfoss and AstraZeneca pursued the right to reclaim VAT when entertaining business customers from overseas, and were ultimately successful in the European Courts of Justice.

It is important to note that the scope is limited to entertaining overseas customers, and most general entertaining costs will therefore remain 'blocked'. And where the costs do relate to overseas clients, HM Revenue & Customs will be interested to see if any Output VAT might also be due, in respect of any 'private use' element of the costs. So claims are unlikely to be straight forward. Nevertheless, for some businesses, this could be an opportunity to reclaim significant amounts of VAT, and to reduce costs going forwards.

For further information, see HMRC's Revenue & Customs Brief 44/10