I can see that this question has been asked before, but a lot of the answers are very old and the Quickfile links from this page are brokenL New “Out of Scope” and “VAT Exempt” Filters - Knowledge Base / Announcements - QuickFile
Yesterday I took a client out for lunch.
The receipt has the cost of the food and VAT itemised separately.
I’ve created the purchase, recorded the VAT at 20% and used the category “UK Entertainment”
As VAT cannot be claimed on this invoice I’ve also set it to “Out of scope of UK VAT”.
Selecting this option immediately set the VAT to 0%, which seems to defeat the point of the check box, so I set it back to 20% and re-entered the VAT, expecting the purchase to be “fully exclude the invoice from the VAT Return calculations” as stated in the Quickfile Knowledgebase announcement.
However, when I look at the Chart of Accounts, the VAT on his purchase is still recorded under “2201 Purchase Tax Control Account”.
What am I doing wrong, or is this feature simply broken?
Thanks
If VAT cannot be claimed on a purchase then the actual cost to your business is the full VAT inclusive total and the correct way to record this in QuickFile is to put the bottom line total as the net column and set the vat rate to 0%.
On the purchase side don’t think of the VAT column as representing how much vat you paid to the supplier, rather how much vat you can claim from HMRC. The “net” is the net cost on your business P&L, whatever form that takes.
The “out of scope” checkbox will stop this purchase from being counted in box 7 on your VAT return, that’s all. My reading of the rules is that you shouldn’t tick this box, and should include the purchase in box 7, but check with your accountant if you want a proper opinion on that.
Hi @bebaca_chris
Firstly, thank you for bringing those broken links to our attention. It does appear to be an old article but I will ensure this is updated.
VAT on business entertainment is not considered “Out of Scope” of VAT. Instead, it is classified as “Exempt Input Tax”, meaning VAT is not recoverable but still within the scope of VAT rules.
Key Points from HMRC (VAT Notice 700/65):
- Business entertainment (e.g., taking a client out for a meal) - VAT cannot be reclaimed.
- Employee entertainment (e.g., staff parties) - VAT can be reclaimed, provided it is for business purposes.
- Entertainment for overseas clients * VAT may be recoverable, subject to conditions.
Should Business Entertainment Be Marked as “Out of Scope” in QuickFile? No, because the transaction still falls within the VAT system but is simply non-recoverable.
Instead, record the full gross amount (including VAT) as an expense under “Entertainment Costs.” You should set the VAT as “Exempt”, but not “Out of Scope.”
I hope this helps. It’s always worth double checking these types of queries with your accountant (I’m not one), just to be safe.