TAXATION - E&Y celebrates staff party win

Ernst & Young has beaten off a Customs & Excise challenge to stop the firm claiming input tax on VAT for entertainment at staff parties.

But Customs did win its battle to stop the firm seeking input tax on a cabaret for its partners’ annual conference.

The firm’s VAT tribunal victory came after it argued that parties, including its annual Christmas bash, boosted staff morale and communication, while rewarding hard work. The VAT commissioners fought to disallow input tax for alcohol, discos and entertainment.

Guest at E&Y’s Christmas party paid #15 towards a meal costing the firm #82.50. Customs disallowed input tax, except for the portion paid for by guests, classifying it as business entertainment.

Dario Garcia, head of E&Y’s national VAT litigation practice, argued it was wrong to split the supply into two parts – one paid for and one free.

The tribunal backed his claim, which follows a similar victory for KPMG earlier this year, adding that #15 was a reasonable price for the tickets.

But E&Y partners lost out over cabaret entertainment which was deemed to be purely for pleasure, rather than business purposes.

Andrew Jones, E&Y’s London managing partner, said: ‘The tribunal accepted that expenditure incurred by an employer entertaining its staff as appreciation for their efforts is business expenditure.’