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VAT on private member's club use of facilities

Mix of accomodation, subsistence and entertainment

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Good afternoon,

A Director of Ltd Co is a member of a private club in London which he uses when travelling away from home. Sometimes he stays overnight but mostly uses it to meet his clients. The club sends a monthly statement, detailing food, drinks and accomodation. It is addressed to the Director but the company pays it directly by DD.

Previously these have been entered in the accounts as one supply and the VAT has been reclaimed in full.

I am trying to establish firstly that the company can indeed claim the VAT. I think it would be treated no differently to a hotel bill in the name of an employee and then reimbursed to them. Secondly it seems to me that some of the costs should be treated as entertainment and VAT disallowed. Could someone please confirm this?

Many thanks

 

Replies (12)

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chips_at_mattersey
By Les Howard
10th Oct 2017 14:17

Business entertainment includes hospitality and entertainment incurred for business purposes, and provided to the recipient free of charge.
But the company can claim input tax on subsistence, when the director needs to stay away from his normal place of business.
Some of the costs you describe are business entertainment, and some subsistence.

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Replying to leshoward:
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By Chipette
10th Oct 2017 15:15

Thanks Les, this is my thinking too. I was just double checking as it has not been disallowed before.

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By I'msorryIhaven'taclue
10th Oct 2017 14:51

Chipette wrote:

I am trying to establish firstly that the company can indeed claim the VAT. I think it would be treated no differently to a hotel bill in the name of an employee and then reimbursed to them.

Agreed, having the company pay directly and the invoice in the director's name should be fine.

Chipette wrote:

Secondly it seems to me that some of the costs should be treated as entertainment and VAT disallowed.

Well you've mentioned food, drinks and accommodation in your question; nothing else. So which of those do you want to treat as non-allowable entertainment, and why? Subsistence (ie food and drink) is allowable when attached to allowable travel accommodation, even if it is itemised separately.
Are we talking about a decent bottle of wine or two to accompany his evening meal? (allowable). Or twelve pints of Guinness? (not so allowable).

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Replying to I'msorryIhaven'taclue:
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By Chipette
10th Oct 2017 15:13

Thanks, most of the time he uses the club as a place to meet his clients. The statement mentions food (usually small charge), dinner for 2 or 3 (typically £70 pp) and a fair amount of wine, beer and spirits. This suggests entertainment to me.

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By Portia Nina Levin
10th Oct 2017 15:19

What's the point in asking, and then not providing all the relevant information?

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Replying to Portia Nina Levin:
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By Chipette
10th Oct 2017 15:26

I did mention he was using the club mostly to meet clients.

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Replying to Chipette:
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By Portia Nina Levin
10th Oct 2017 15:30

So you did! Although it might have been a bit clearer.

You are correct that the costs of entertaining the clients (including the director's own food and drink, when it is incidental to that entertaining) is business entertainment, such that VAT cannot be recovered, and you will have to add-back the costs for direct tax purposes.

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Replying to Chipette:
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By I'msorryIhaven'taclue
10th Oct 2017 16:36

Chipette wrote:

I did mention he was using the club mostly to meet clients.

Ahha, I too missed that. I read it that the monthly statement the club send "detailing food, drinks, and accommodation" related to his overnight stays or for subsistence when "travelling away from home". It wasn't obvious to me that he covers his clients' meal and bar-tabs.

If the real purpose for his visiting his club is a jolly-outing you have to wonder whether the accommodation costs themselves are allowable.

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By Portia Nina Levin
10th Oct 2017 16:45

If it isn't a cost of the entertaining itself, but it serves the entertaining, and the entertaining is genuinely for the purposes of the business, then I don't see why not, although there may be a benefit in kind.

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By I'msorryIhaven'taclue
10th Oct 2017 16:58

I have a picture of him staying the night because he has had too much "entertainment" to travel home. (This has been a constant worry for yours truly over the years.)

If the associated costs of entertaining, "the provision of anything incidental thereto", such as travel expenses are disallowable then why, I ask myself, not accommodation?

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Replying to I'msorryIhaven'taclue:
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By Portia Nina Levin
10th Oct 2017 17:06

Travel isn't disallowable. That's a common misunderstanding of HMRC's guidance.

Eg golf event. I travel to it, and my travel costs are allowable. I take a client to it and the travel costs are not allowable, as taking the client there is part of the hospitality. See the final paragraph of BIM45025.

Likewise, getting [***] up at the club and staying overnight. The staying overnight is not part of the entertaining, and is allowable, but I get a benefit in kind. My meal and drinks though are incidental to the actual entertaining and are disallowable. It's all perfectly simple.

You need to consider two tests. W+E first, and then if it satisfies that, the business entertainig rules; where the incidental leg means costs actually incidental too, rather than simply to facilitate it.

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Replying to Portia Nina Levin:
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By I'msorryIhaven'taclue
10th Oct 2017 17:41

BIM45025's final paragraph is an old forgotten friend, and I get what you've said about its final para: if our protagonist travels alone, that's allowable because it's to facilitate the entertainment; if he shares his cab with his client that travel becomes incidental to the entertainment, and thereby disallowable.

And you've applied the same rules to accommodation and assumed he doesn't share a bed with his client either. Magnifique!

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