A question about service charge VAT

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Hi all

Would really like some help from a VAT expert.

I am aware that service charge is outside of the scope of VAT if discretionary and entertainment is zero rated. If, however, we've an entertainment meal that is of course zero rated, do you separate the service charge, categorise as entertainment but apply 'outside of the scope of VAT' tax rate to it and the meal itself as zero rated or because it is all under entertainment, the entirety of it should be zero rated?

Thanks all

Replies (11)

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By David Ex
13th Jun 2024 15:13

HooHa wrote:

I am aware that ... entertainment is zero rated.

Any source for that? News to me but then I'm no VAT specialist.

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By HooHa
13th Jun 2024 15:31

Sorry should specify that this is disallowable entertainment expense.

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By Paul Crowley
13th Jun 2024 17:23

It does not matter.
If you are not claiming VAT then apply that to the entire invoice.

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Replying to Paul Crowley:
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By HooHa
13th Jun 2024 23:40

Thank you for your response. Though I understand what you’re saying as the VAT implication would be the same, what would be most accurate/correct? I am inclined to think to zero rate the meal but apply outside of the scope of VAT to the discretionary tip.

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By cinnamint
13th Jun 2024 21:33

The whole bill is entertainment, no vat as outside the scope and disallowed. You don't need to be a VAT 'expert' to know that.

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By HooHa
13th Jun 2024 23:39

Thank you for your response. Though I understand what you’re saying as the VAT implication would be the same, what would be most accurate/correct? I am inclined to think to zero rate the meal but apply outside of the scope of VAT to the discretionary tip.

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Stepurhan
By stepurhan
14th Jun 2024 08:05

As you seem obsessed with making the distinction.

In practical terms, what difference would it make to your accounting records if you did do the split? How are you expecting any figures to change?

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By paulwakefield1
14th Jun 2024 08:47

Well I suppose that Box 7 would be technically wrong if outside the scope tips were not excluded. But who is going to care?

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By Truthsayer
14th Jun 2024 09:29

What you are effectively asking is whether box 7 include the service charge or not. If you want to be ultra-meticulous, you should exclude it, but as it makes no difference to the VAT bill and only a minimal difference to box 7, it is really not worth thinking about.

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DougScott
By Dougscott
14th Jun 2024 14:18

Possibly one could argue that this is a "single supply" for VAT purposes and the subsidiary elements of the supply follow the main element of the supply and so the whole supply is zero-rated.

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Replying to Dougscott:
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By kim.shaw-and-co.com
15th Jun 2024 03:30

Dougscott wrote:

Possibly one could argue that this is a "single supply" for VAT purposes and the subsidiary elements of the supply follow the main element of the supply and so the whole supply is zero-rated.

Which begs the question, without wishing to shake HooHa's technical tree unduly, or raising the spectre of output tax charge(s) if the recipient(s) are staff other than at an event open to all, if the main supply is standard-rated but effectively VAT-blocked would it not strictly either :

(a) be entered as standard-rated with gross value in the 'net amount' and VAT over-ridden to £0.00 (reflecting an input tax block)

or

(b) be entered as standard-rated with input tax claimed 'as normal' but subject to a VAT Return adjustment in the amount of the output tax charge due at month or quarter-end ?

A wholly unnecessary debate to have of course, but seeing as we're shooting the breeze about whether to treat a cost that's outside the scope of VAT as incidental to a taxable supply, we may as well question whether recording a supply that's standard-rated as zero-rated to 'fudge' it into Box 7 without having to remember to over-ride the input tax element is the "correct" thing to actually do in the first place !

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