Readers’ forum: VAT problem with complimentary drinks?

One of my restaurant clients has had a strange ruling from HMRC following a compliance review of his VAT returns. At the end of a meal my client gives a free spirit drink to his customers – usually a whisky or vodka – and complimentary chocolate mints. At the end of a busy shift – when the restaurant has closed – he also gives a complimentary drink to each member of staff. The staff can choose what they want including an alcoholic option.

The officer has said that my client should not claim input tax on the spirits and chocolates given to the customers because of the business entertainment rules. Although he is happy for my client to claim input tax on the free drinks given to staff he says that output tax must be declared because the value of free drinks to each member of staff...