Staff Teambuilding and VAT Recovery

Where you, the employer provides entertainment such as staff parties, team building exercises, staff outings and similar events for the benefit of employees to reward them for good work or to maintain and improve staff morale, you are not blocked from input tax recovery under the business entertainment rules, as long as you provide the event wholly for business purposes.

However, there are 2 exceptions to this general rule. These are where:

The entertainment is provided only for directors or partners of a business, the VAT incurred cannot be recovered as the goods or services purchased are not used for a business purpose. However, where directors and partners of the business attend staff parties together with other employees, the input VAT is not blocked from recovery.

The second exception is where employees acting as hosts to non-employees incur costs that are for the sole purpose of entertaining a non-employee, the input tax recovery is also blocked under the business entertainment rules.

Date published 5 Dec 2012

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.