Business Entertainment Expenses: What You Can and Cannot Claim
Business Entertainment Expenses confuses many owners. The rules feel strict and unclear. Most client hospitality is not tax deductible. VAT is usually blocked as well.
However, a few exceptions exist. You can claim in defined situations. This blog explains what you cannot claim. It also shows when you can claim.
You will see examples and practical steps, and furthermore you get a simple checklist.
What counts as Business Entertainment Expenses?
Business entertainment means hospitality given free of charge. Think meals, drinks, events, tickets, or days out with contacts.
If a client attends, the cost is entertainment. The whole bill fails. Your lunch is incidental to the client’s lunch. The expense is blocked.
Light refreshments at meetings are different. Tea, coffee, and biscuits usually pass. They support the meeting purpose. They are not hospitality on their own.
Keep refreshments modest and necessary. Avoid lavish venues or alcohol.
Why most claims fail
The rules stop tax from funding social or personal costs.
Taking a client to lunch feels like business development. The rules disagree.
HMRC sees that as hospitality. The tax system blocks that spend.
Plan ahead to avoid mistakes. Treat client hospitality as non‑deductible.
When you can claim
Here are the main exceptions. Use them correctly and keep records.
Entertaining employees
Entertainment exclusively for employees usually qualifies. Examples include staff parties, team events, and celebration meals.
You can normally deduct the cost, moreover you can usually reclaim VAT as well.
Directors‑only events do not qualify. Partners‑only events also fail. Relatives and other non‑employees do not qualify for VAT recovery.
If guests attend with employees, apportion the costs carefully. Claim only the employee share. Keep a clear attendee list.
The £150 per head annual function rule
You may claim up to £150 per head each tax year for annual functions.
Most businesses use this for a Christmas party. It can cover other events.
The event must be annual and open to all employees.
You can split the allowance across several events. Add the costs together.
If the total exceeds £150 per head, the whole amount becomes taxable.
This rule applies even if your only employees are directors.
Keep attendee records and invoices. Calculate the per head figure clearly.
Contractual obligation or package pricing
Hospitality can be allowable when supplied under a genuine contract.
There must be a clear return of value from the other party.
Example. You include lunch within a paid training workshop package.
Attendees pay for the overall service. You can claim the related costs.
Token exchanges do not work. A simple survey does not prove value.
Document the commercial reason. Show the payment and the deliverables.
Small promotional gifts and samples
Client gifts usually fail. However, genuine promotional items may qualify.
Keep the cost modest. Add a clear and lasting advertisement to the item.
Avoid food, drink, tobacco, or vouchers. These usually fail the rules.
Product samples can qualify. You must give them to promote sales.
Record the recipient and purpose. Keep supplier invoices on file.
The VAT angle in simple terms
Input VAT on client entertainment is usually blocked, not so Input VAT on employee entertainment. Directors‑only events do not.
For mixed events, apportion the VAT. Claim only the employee element.
Keep itemised invoices to support any apportionment.
Use your accounting system to tag these costs consistently.
Grey areas and quick examples
Directors at staff events can be included. Employees must also attend.
If only directors attend, the costs do not qualify at all.
Light refreshments at meetings are fine. Restaurant lunches rarely qualify.
Working sessions with modest food may pass. Hospitality must not be the motive.
Client hospitality at your office still fails. Location does not change the rule.
Supplier entertainment also fails. Treat it like client hospitality.
Records, evidence, and retention
Good evidence protects your claims. It also speeds any future review.
Record the date, venue, and business purpose. Note the attendees by name.
Keep itemised invoices and receipts. Avoid summary till slips where possible.
Separate employees, clients, and other guests. Apportion costs where needed.
Store records for at least six years. Use digital storage for safety.
Adopt a simple policy for entertainment. Share it with your team.
Review your coding rules in software. Keep categories consistent.
Read more on digital bookkeeping , it will help more than your process.
Practical checklist you can use today
Set up two cost codes. One for employees. One for clients and others.
Create a simple attendee template. Capture names and the business reason.
Tag receipts immediately. Do not wait until month end.
Log the per head cost for staff events. Track the annual total.
Apportion mixed events. Keep the calculation with the invoice.
Block VAT on client entertainment by default. Avoid accidental claims.
Train your team on the rules. Use short examples to explain points.
Run a quarterly review. Correct any errors before year end.
Common mistakes to avoid
Claiming client lunches as marketing. The rules still block these claims.
Running a directors‑only party and claiming costs. That will not pass.
Forgetting to apportion mixed events. That creates avoidable errors.
Losing attendee details. That weakens your evidence significantly.
Using round‑sum postings. Itemised invoices work better for VAT.
Helpful resources on I Hate Numbers
- Explore articles on cash, tax, and controls on our News page
- Listen to the I Hate Numbers podcast for plain English finance help
- Learn about digital bookkeeping on our site. Improve records and controls
- Check out our other business, Numbers Knowhow
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Conclusion
Most client hospitality is not allowable. Plan with that in mind.
Employee events can qualify. Use the £150 per head rule correctly.
Contractual packages may work. Prove the genuine commercial return.
Keep clear records and apportion as needed. That protects your position.
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