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How is VAT/CT treated on recharged entertaining?

Can my client reclaim VAT and allow for CT entertaining recharged by a supplier/contractor?

My client has a service supplier who occasionally entertains customers/suppliers in the course of providing the service. The supplier then recharges the cost of the entertaining in full (including any VAT), and adds VAT to their invoice.

I am pretty sure the supplier does not disallow the entertaining expense for CT and may or may not reclaim the included VAT (probably not). Is this treatment correct from the supplier point of view.

If the underlying expense is allowed for CT/VAT in the supplier, Does my client have to disallow them for both CT and VAT?

Thanks.

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22nd Jan 2018 17:28

Yes - if you're in the business of selling entertainment, you're not actually entertaining so there's no disallowance.

Not sure whether the company intends to make a profit on this or not but they will be doing if they're recharging the cost including VAT to the customer + a VAT charge on the VAT inclusive price.

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22nd Jan 2018 17:30

Your client isn't entertaining anyone, is he/she? It doesn't look like a disbursement. Looks like the service supplier is entertaining on own account so any tax disallowance would be theirs, I would have thought.

What does the agreement with the service supplier say about entertaining?

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