Can You Claim VAT on Client Entertainment?

Client entertainment is a regular part of doing business – from taking a client to lunch to hosting a corporate event. But when it comes to reclaiming VAT, HMRC draws a firm line. In most cases, you cannot claim VAT on client entertainment, even if the event is entirely for business purposes.

This guide explains what HMRC classifies as entertainment, which types are blocked for VAT purposes, when you can and can’t reclaim VAT, and how the rules apply differently for staff and overseas clients.

Can You Claim VAT on Entertainment?

Under UK VAT rules, business entertainment is usually not deductible. HMRC defines business entertainment as the free provision of food, drink, hospitality, or other services to non-employees.

This includes:             

• Taking a client out for lunch or dinner

• Entertaining prospects at sports events or concerts

• Providing hospitality at product launches or business receptions

• Offering free tickets, gifts or travel as part of a business relationship

Even if the entertainment has a genuine business motive, VAT on these costs cannot be reclaimed.

Can You Claim VAT on Client Entertainment?

You cannot reclaim VAT on entertainment provided to clients, customers, suppliers, or potential business contacts. The rule applies even if:

• You sign a deal at the event

• The entertainment is modest or infrequent

• Your accountant has included the cost in your business expenses

HMRC treats this as a business cost for tax purposes, but not a reclaimable expense for VAT.

You must exclude input VAT on client entertainment from your VAT return, even if you receive a valid VAT receipt from the supplier.

What About Staff Entertainment?

VAT on staff entertainment is generally reclaimable, provided:

• The entertainment is only for employees

• It’s for the benefit of the business (e.g. staff morale or reward)

• The costs are not excessive or personal in nature

Examples of allowable staff entertainment include:

• Annual staff parties

• Team-building days

• Internal staff lunches or events

However, if you invite clients to the same event, the VAT must be apportioned, and the portion related to client costs is blocked.

Who Is Considered an Employee?

For VAT purposes, an employee includes:

• Full-time and part-time staff

• Temporary workers under contract

• Directors and partners

Clients, subcontractors, and consultants are not considered employees – even if they work with your team regularly. Entertainment for them is not eligible for VAT reclaim.

Are There Exceptions to the Rules?

There are a few limited exceptions where you may be able to claim VAT on entertainment:

• If you charge the client for the entertainment as part of a billable event or service, and VAT is accounted for on the whole supply

• If the entertainment is incidental to a paid-for event, like a training course with refreshments

• If the entertainment is provided to overseas clients under specific conditions

HMRC requires clear documentation and invoices to prove that VAT has been correctly handled in these cases.

How Do the Rules Apply to Overseas Customers?

If you're entertaining a non-UK business customer, and the entertainment is:

• Strictly for the purpose of developing overseas business, and

• Not excessive or mainly social

then HMRC may allow VAT to be reclaimed, provided the costs are directly linked to taxable overseas supplies.

This is a narrow exception, and you should document the business purpose clearly and consult an accountant before including VAT in your reclaim.

Overview

You cannot claim VAT on most client entertainment, even if it’s closely linked to winning or maintaining business. HMRC treats client hospitality as a non-business expense for VAT purposes, regardless of its commercial intent.

VAT on staff entertainment, however, is usually recoverable, as long as the benefit is provided solely to employees. Always keep records and separate out costs where clients and staff are entertained together.

When in doubt, treat client entertainment VAT as blocked – and speak to your accountant or tax adviser before making a claim to avoid penalties or adjustments in a VAT inspection.