You are probably aware that, although you may be a registered vendor for VAT purposes and you have a VAT tax invoice, unless you are in the entertainment business you are not allowed to claim the VAT you paid on entertainment spending on your VAT return.
However, where does "entertainment" start and stop? And what can and can't you claim?
The concept of entertainment for VAT purposes is very broad and includes the provision of food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind.
Not only does it include your taking a client or supplier out to lunch, dinner or a show, but also when you buy a kettle, cups, saucers, spoons, cleaning materials, tea or coffee for your staff to have tea (at little or no charge) during work time.
The VAT you paid on these purchases will not be claimable as an input tax credit.
Also, if you buy a bottle of wine for a client or supplier as a gift at Christmas time, the VAT you paid will not be claimable.
If, on the other hand, you buy your client or supplier a diary or pen or calendar, the VAT charged to you on the VAT invoice would be claimable.
If you've decided to buy a rugby or cricket box and will entertain clients and/or staff, the VAT charged to you on buying the cricket box may also not be claimable as VAT deduction.
So when can you claim the VAT charged to you on purchases that fall within that broad definition of "entertainment"?
The first instance relates to the situation when you are in the business of entertaining you run a restaurant, a theatre or a hotel.
Until the latest amendments to the tax laws, it was possible to argue that, if you were in the business of producing or selling food or beverages, you could claim the VAT charged to you. This applied not only to the cost of your purchases to make the food or beverages you planned to sell, but also employees' tea and lunch costs, and the costs of taking clients or suppliers out to lunch or dinner.
The law has, however, been changed to counter this so that, unless you charge an amount which covers the direct and indirect cost of this particular "entertainment", you will not be allowed to reclaim the VAT charged to you.
You may also claim the VAT on invoices made out to you on the costs of food and accommodation provided to an employee who spends time away from his normal place of residence or work on business.
And, if you are running a seminar, and you have charged a fee for attendance which is sufficient to cover the cost of food and beverages provided during the seminar, you may claim the VAT you were charged for the food and beverages.
Although there are exceptions, they are limited, and it is clear that if, in your business, you spend money that could fall within the definition of "entertainment", you need to consider carefully before you claim the VAT as a deduction on your VAT return.