Well, ‘business entertainment’ is one of the areas where input tax is specifically blocked, or output tax is due on the supply for certain types of ‘entertainment’ or ‘corporate hospitality events’ – (VAT Notice 700/65 – Business entertainment (VAT Notice 700/65) – GOV.UK (www.gov.uk) – refers here).
As no non-employees attended then the block on ‘business entertainment’ wouldn’t seem to apply at first glance but consider all the factors detailed in 700/65.
If the tickets were purchased in connection with a staff reward scheme, or to improve morale and provide additional staff benefits etc, then input tax could be claimed as this would be a business expense, e.g the business owns an executive box at a local sports stadium and offers it for free to staff as an incentive for their performance.
There is however a specific situation mentioned in section 3.2 of 700/65 – and detailed further in the VAT Input Tax Manual at VIT43600 – VAT Input Tax – HMRC internal manual – GOV.UK (www.gov.uk) . This confirms that where the ‘entertainment’ is provided solely to directors, partners or sole proprietors this would not be reclaimable as Input Tax as it not seen as a business expense (i.e it’s not an incentive/reward for staff/employees).
For completeness, if the company also made the box available for use by non-employees, then that input tax would be blocked as business entertainment. In that case an apportionment of input tax would be required between the reclaimable business use and the non-reclaimable entertainment use.
Further, should it be that an employee(s) is(are) attending the event as well as the guests, but the employee is acting as host on behalf of the company in entertaining the guests, then the costs would be incurred solely for entertaining the guest. An employee happening to be in attendance, but acting as host, would mean that the whole cost would relate to business entertainment and all of the input tax would be blocked.
So, in this case, as only the directors attended the rugby match, no input tax can be reclaimed as per 3.2 of 700/65.
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