I have a client who has put a restaurant VAT receipt through his business as a staff outing e.g team building. I am aware that the VAT is recoverable under these circumstances.
I found out though that this never happened and the bill was for a personal meal with friends. What should I do in these circumstances?
I've had this happen a few times myself. You need to explain to your client that this expense is not allowable for VAT and tax purposes, and that the payment should go to the drawings (directors loan) account as it is a personal not business expense. If the VAT has already been reclaimed on a VAT return (that has been submitted), you will need to adjust the following quarters VAT return with the relevant amount of Input VAT. The journal required in the accounts would be as follows:
Credit the Profit & Loss Account (with net amount of payment) Credit the VAT Account (with the input VAT element of payment) Debit the Drawings Account (with gross payment)
