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In the UK, businesses can often claim back the VAT (Value Added Tax) they have paid on goods and services purchased for use in their business. However, when it comes to staff subsistence (food, drink, accommodation), the rules can be complex.

How VAT works for subsistence costs

In a business context, subsistence expenses refer to expenses incurred by an employee for food, drink, and accommodation away from the normal place of work. VAT can be reclaimed on subsistence expenses if the business pays the actual cost of the expense.

A business cannot reclaim VAT when a fixed allowance is paid to an employee even if tax invoices are held. This is because the supply has not been made to the business.

There may be occasions when a business can reclaim VAT on subsistence costs for someone other than an employee or for accommodation which is close to the normal place of work. An example provided by HMRC is hotel accommodation close to the workplace provided to the director of a business when a rail strike would prevent the director getting in to work.

Accommodation

When an employee incurs costs for overnight accommodation as part of a business trip, the VAT incurred on these costs is reclaimable if the business covers the cost of the stay. This is because the accommodation is necessary for the employee to carry out their business duties and is, therefore, considered a business expense.

VAT is also reclaimable on overnight accommodation away from the normal place of work when the cost is incurred by a director. partner or sole trader.,

Meals

VAT can be reclaimed on meals for employees which are paid for by the business. This includes meals provided in a staff canteen.

VAT incurred on meals taken away from the normal place of work by directors, partners or sole traders can be reclaimed provided the meals are for a business purpose.

Is it subsistence or entertainment?

There is often confusion around the difference between subsistence and staff entertainment.

  • Subsistence refers to food, drinks, and overnight accommodation provided to employees and paid for by the business when the costs are incurred for a business purpose.
  • Staff entertainment, on the other hand, involves providing food, drink, and entertainment when there is no business purpose although, in practice, this is likely to be rare. You can read more about that in our blog on VAT for staff entertainment.

It is important to note that the VAT treatment of staff entertainment is different to that of business entertainment.

Seek advice if you aren’t sure

It's important to note that the above rules are not exhaustive and there may be additional considerations depending on the specific circumstances. Therefore, it's always advisable to seek professional advice if you're unsure about the VAT rules for subsistence expenses in your particular case.

Getting VAT wrong can be disruptive and costly, HMRC has systems capable of tracing even small discrepancies in VAT returns. Speak to our VAT team if you have any queries or uncertainties about your VAT situation.

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author

Lynne Gill

My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.

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