Working lunches – a step too far by HMRC

Do you provide free business lunches to clients/business contacts? Have you restricted the VAT incurred on such lunches? If so, you may be interested in a recent European Court decision.

The Danfoss A/S, AstraZeneca A/S case(C-371/07) involved the provision of free meals in the staff canteen to health professionals attending business meetings at the appellant’s premises. The ECJ judgement has confirmed that such lunches may have a business purpose where the meal is provided to improve the efficiency of the meetings and if there is a business purpose, then the VAT is deductible.

This decision has cast some doubt over the UK’s treatment of VAT on business entertainment, and in particular, for working lunches.

UK VAT law restricts the recovery of VAT on business entertainment including in house lunches provided free of charge to clients during business meetings and to staff hosting such meetings.

This decision may mean that UK law may be too widely drawn. It remains to be seen whether further litigation on this issue will be pursued in the UK Courts. In the meantime, businesses may wish to consider submitting protective VAT claims, pending the final outcome of this matter.

Claims submitted for VAT incurred prior to 1 May 1997 (under the terms of the Conde Nast/Fleming cases) will have to be submitted by 31 March 2009.