When it comes to claiming expenses, business entertainment is usually off-limits. HMRC makes it clear that most entertainment and gift costs can’t be deducted from your profits or reclaimed for VAT purposes—even if they’re a genuine business expense.
But here’s the thing: there are exceptions. And if you know where to look, you might find that some costs are allowable after all.
Let’s break it all down so you know what you can and can’t claim.
First Things First—What Counts as “Entertainment”?
HMRC doesn’t give a strict definition, but generally, entertainment covers any hospitality provided free of charge.
Their guidance asks a simple question:
Would you still incur the cost if no guests were present?
If the answer is no, it’s probably business entertainment—and not allowable for tax or VAT purposes.
Example:
Taking a client to lunch?
Even if it helps win business, HMRC sees it as entertaining—because you wouldn’t have spent the money if the client wasn’t there. So it’s not tax-deductible, even for your own meal.
However, light refreshments like tea, biscuits or soft drinks at a business meeting are generally accepted as allowable—so long as there’s no underlying motive of hospitality.
So, When Can You Claim Business Entertainment?
There are a few important exceptions worth knowing. You can claim tax relief and VAT on entertainment exclusively for your employees.
That includes:
- Staff parties
- Team-building events
- Annual functions (like the Christmas do)
But there are some conditions:
- The entertainment must be for employees, not their friends or relatives.
- You can’t claim if it’s just for directors (unless the directors are the only employees).
- If directors or partners attend an event alongside other employees, then a full or partial claim is usually fine.
Top Tip:
The £150 per head allowance for annual events (e.g. a Christmas party) can be claimed even if the only employees are directors.
Entertainment Under a Contractual Obligation
You may be able to claim if the entertainment is part of a contractual agreement—meaning the other party provides something of value in return.
For example:
- You run a corporate training day that includes lunch, and attendees have paid to attend.
- You offer hospitality as part of a paid event package.
In these cases, the entertainment is part of a service, and tax relief and VAT can apply—as long as you can clearly show the return value.
Just completing a quick survey or signing a guest list doesn’t count as a fair exchange. HMRC will expect something more substantial.
Keeping It All Compliant
If HMRC ever opens an enquiry, they’ll want to see clear records of:
- Who was entertained
- The business purpose of the event
- Copies of receipts and invoices
- A breakdown of which costs relate to employees vs. guests
And remember, you should keep these records for at least six years.
A Quick Recap
| Entertainment Type | Tax-Deductible? | VAT Reclaimable? |
| Client lunch/dinner | ❌ No | ❌ No |
| Tea/coffee/biscuits at business meetings | ✅ Yes | ✅ Yes |
| Staff parties/events (for all employees) | ✅ Yes | ✅ Yes |
| Events just for directors/partners | ❌ No | ❌ No |
| Mixed employee & guest events | ✅ Partial | ✅ Partial |
| Contractual entertainment (with value in return) | ✅ Possibly | ✅ Possibly |
Need Help Navigating the Grey Areas?
Entertainment expenses can be a minefield—and one misstep could lead to a costly disallowance or VAT clawback.
If you’re not sure what you can claim, or how to handle mixed events involving both staff and guests, we’re here to help.
Get in touch with Jon or the team today and let’s make sure your entertainment costs are treated correctly.
Contact us now to get expert advice—before HMRC comes calling.
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