60. General limits on deductibility

Summary

This section sets out the general limits on deductibility. Broadly speaking, expenditure on food and drink, accommodation or entertainment is not deductible, even if the goods and services are acquired or used for the purpose of a taxable business. There are special provisions under which deductibility is allowed in respect of certain business conferences.

Details

(1) The terms ‘delegate’, ‘qualifying accommodation’, and ‘qualifying conference’ are defined for the purposes of the section – deductibility is allowed in respect of these supplies, although it is not otherwise allowed for accommodation.

‘Motor vehicles’ are also defined – basically, these are motor cars and motor cycles and variations thereof, apart from those which would normally carry more than 16 people; ambulances are also excluded.

(2)(a) The various supplies on which tax is not deductible are as follows:

(i) Food, drink, accommodation (other than qualifying accommodation in connection with attendance at a qualifying conference) or other personal services for the accountable person, his/her agents or employees, except where such a supply relates to a supply of services on which a liability to tax arises (for example, a canteen). Input credit for expenditure incurred on building or fitting out a building, for the purposes of providing accommodation (other than qualifying accommodation) is also disallowed.

(ii) VAT paid in respect of expenditure by an advertising agency on food, drink, accommodation or other entertainment services where it forms part of an advertising service. In practice, the cost (inclusive of VAT) of this expenditure will form part of the overall cost to the agency in providing the advertising service. VAT charged by the advertising agency to its client in respect of the advertising service itself is deductible, subject to the normal rules.

(iia) Expenditure incurred on the acquisition or development of immovable goods, on or after 1 January 2011, even where such goods form part of the assets of a business, to the extent that an accountable person uses those goods for any purpose other than for business.

(iii) Entertainment expenses incurred by accountable persons, their agents or their employees. Input credit is also disallowed for expenditure incurred on a building or fitting out a building or facility for the purpose of the entertainment.

(iv) Subject to section 59(2)(d), the purchase of motor vehicles, other than those acquired as stock-in-trade or for onward supply by a finance house as part of a hire purchase type agreement or for the purposes of hiring or for use in driving instruction in a driving school.

(v) Petrol, other than as stock-in-trade.

(vi) Contract work involving the handing over of goods where such goods are not deductible.

(2)(b) Paragraph (b) clarifies that references to accommodation in paragraph (a)(i) and to entertainment in paragraph (a)(iii) and includes certain expenditure on buildings.

(3) Accountable persons are prohibited from deducting tax included in the price of second-hand goods or second-hand means of transport bought from dealers operating under the margin scheme for taxable dealers or the margin scheme for auctioneers – see sections 87 and 89.

Relevant Date: Finance Act 2020