Blocked Input Tax: 50 years of VAT

What is blocked input tax?  Blocked input tax is VAT that cannot usually be recovered.

The most common type of blocked input tax is VAT on business entertaining. There are usually two types of entertainment expense incurred by a business and it is very important to distinguish between the two because the VAT treatment is very different.

The first is business entertainment.  Business entertainment is entertainment provided to persons who are not employees of the business and is provided free of charge.  An example of this may be taking a customer on a night out or gifting tickets to a customer for a sporting event.  VAT on business entertainment is blocked and you cannot usually claim it (there is an exception for entertaining overseas customers).

The second is staff entertainment. In order to reward your employees or improve staff morale, you may wish to treat your staff to a party or, even more exciting,  a staff outing.  VAT on staff entertainment is not blocked and thus recoverable.

Beware though – if the only staff involved are the Directors or the partners/sole proprietors then the VAT incurred can not be claimed.

Input tax on motor cars is also blocked, other than some exceptions. The exception is that the car must be used exclusively for business.  Examples of this would be a car purchased for a driving school, taxi hire or self-drive hire.

HMRC provides a list as to what they consider to be a car or van for the purposes of Input tax deduction.

That list can be found here:

HM Revenue and Customs: car derived vans and combi vans – GOV.UK (www.gov.uk)

For more information please contact your local Whitings Office

Disclaimer - All information in this post was correct at time of writing.