I paid VAT on this expense — can I always claim it back? Not always
My company paid VAT on client hospitality and on an employee's car — why does the tax office refuse to let some of these amounts be recovered?
Not every VAT amount you pay is recoverable. The law blocks recovery on specific categories of spending even when the expense is genuinely tied to the business's taxable activity, regardless of the amount involved or how good the business's intention was in spending it.
The first category is hospitality and entertainment provided to anyone who is not an employee of the business — customers, potential customers, shareholders, or officials — such as accommodation, food and drink outside ordinary business meetings, or tickets to events and leisure trips. VAT on these is not recoverable at all, even where the hospitality is genuinely meant to build a real business relationship.
The second category is motor vehicles made available for personal use by any employee or owner, for vehicles designed to carry up to 10 passengers — VAT on the purchase, lease, or rental is not recoverable as soon as personal use is possible, even if the vehicle is mostly used for work, with exceptions for licensed taxis, emergency vehicles, and vehicles used in a car-rental business itself.
The third category is any goods or services provided to an employee for their personal benefit at no charge, unless it is a legal obligation under labour law, or a documented contractual obligation genuinely necessary for the employee to do their job. What decides the outcome here is not the company's good intent but how precisely the benefits policy and contracts are documented.
Getting the classification right from the start saves a business from having a full recovery claim rejected in a later review, and that is a core part of the routine VAT records review RASEEKH carries out for its clients before any return goes in.