VAT on business entertainment is generally blocked where the entertainment is provided to UK clients, customers, suppliers or other non-employees. This means many businesses cannot reclaim VAT on client lunches, corporate hospitality events, sporting events, evening meals or similar entertainment provided for business purposes.

There are important exceptions. VAT recovery may be possible for staff entertainment, reasonable entertainment provided to overseas customers, and mixed events where only part of the cost relates to non-employees. The correct VAT treatment depends on who attended, why the entertainment was provided, and whether the VAT incurred relates to business entertainment, employee entertainment or another type of business expense.

This guide explains when VAT on business entertainment can and cannot be reclaimed, including the rules for client entertainment, staff entertainment, overseas customers and mixed events.

It also covers common examples of business entertainment, the records businesses should keep, and the mistakes that can lead to incorrect VAT recovery or HMRC challenge.

Can VAT be reclaimed on business entertainment?

In most cases, VAT on business entertainment cannot be reclaimed where the entertainment is provided to UK clients, potential customers, suppliers or other non-employees.

HMRC’s Business Entertainment VAT Notice 700/65 confirms that input tax on business entertainment is generally blocked. This applies even where the event has a clear commercial purpose, such as winning work, maintaining client relationships or discussing a project.

For example, a business may take a potential customer to lunch to discuss a contract. The cost may be commercially sensible, but VAT recovery is still normally blocked because the hospitality is business entertainment provided to a non-employee.

For wider support with VAT recovery, The VAT People provides advice on reclaiming VAT in the UK.

What qualifies as business entertainment?

For VAT purposes, business entertainment generally means hospitality provided free of charge to people who are not employees.

HMRC’s VAT Input Tax Manual on business entertainment explains that this can include:

• Food and drink
• Accommodation
• Theatre tickets
• Sporting events
• Entry to corporate hospitality events
• Other hospitality provided to non-employees

Business entertainment expenses can include costs incurred when entertaining clients, suppliers, consultants, professional contacts and potential customers.

The key point is that the hospitality is provided to someone outside the business. If the person being entertained is a non-employee, VAT recovery is usually blocked unless a specific exception applies.

What is not usually business entertainment?

Not every cost involving food, drink or travel is business entertainment.

Some costs may be ordinary business expenses or subsistence expenses instead. For example, an employee’s meal while travelling on a business trip is usually treated differently from taking a client to dinner.

Light refreshments provided during a genuine business meeting may also fall outside the business entertainment rules, depending on the facts. Tea, coffee, water or basic refreshments during a meeting are not the same as providing hospitality at a restaurant or event.

This distinction matters because it can affect whether a business can claim VAT.

What are the main business entertainment VAT rules?

The business entertainment rules can be summarised as follows:

• VAT on client entertainment is usually blocked
• VAT on entertainment for UK non-employees is usually blocked
• VAT on staff entertainment is generally recoverable where there is a business purpose
• VAT on entertaining overseas customers may be recoverable if the cost is reasonable
• Mixed events may require apportionment
• VAT recovery may be blocked where entertainment is provided only to directors, partners or sole proprietors
• Output tax may need to be considered where entertainment creates a private benefit

These VAT rules are fact-specific. The purpose of the event is relevant, but it is not the only factor. HMRC will also consider who attended, what was provided, and whether the entertainment was reasonable in scale and character.

Can you claim VAT on client entertainment?

VAT on client entertainment is generally blocked.

This means a business will usually be unable to reclaim VAT on entertainment provided to UK clients, customers or potential customers. Examples include:

• Taking clients to lunch or dinner
• Paying for drinks after a meeting
• Providing tickets to sporting events
• Inviting clients to corporate hospitality events
• Providing hotel accommodation as part of hospitality
• Paying for entertainment at a product launch or networking event

The position is the same even where the entertainment has a strict business purpose. A business may be entertaining clients to build relationships or discuss commercial matters, but VAT recovery is still generally blocked.

Businesses should therefore avoid assuming that “business purpose” automatically means “recoverable input tax”.

Can VAT be reclaimed on entertaining overseas customers?

VAT on business entertainment provided to overseas customers may be recoverable, provided the entertainment is for business purposes and is reasonable in scale and character.

For VAT purposes, overseas customers are customers who are not ordinarily resident or carrying on business in the UK. This exception can be valuable for UK businesses that host overseas clients, distributors or business customers.

However, the exception should be applied carefully. The hospitality provided must be reasonable and linked to the business. Lavish or excessive entertainment may attract HMRC scrutiny, even where overseas customers are involved.

There may also be an output tax charge where the entertainment includes a private benefit. Businesses should keep detailed records showing:

• Who attended
• Where each customer was based
• Why the entertainment was provided
• What costs were incurred
• Why the hospitality was reasonable
• How the VAT claim was calculated

Can VAT be reclaimed on staff entertainment?

VAT on staff entertainment is treated differently from VAT on client entertainment.

HMRC’s VAT Input Tax Manual on staff entertainment confirms that VAT incurred on entertainment for employees is input tax and is not blocked under the business entertainment rules.

This can include staff parties, staff outings, team-building events and a staff Christmas party, provided the entertainment is for business purposes.

However, care is needed where non-employees attend. If an event includes employees and non-employees, the business may need to apportion the VAT and claim only the portion relating to employees.

A structured VAT Health Check can help identify whether staff entertainment, client entertainment and mixed-event costs have been treated correctly.

Can VAT be reclaimed where employees and non-employees attend the same event?

Where employees and non-employees attend the same event, the VAT position should be apportioned.

For example, if a business hosts an event attended by staff members and UK clients, the VAT attributable to employee entertainment may be recoverable, (as long as they are not simply hosting the UK clients), while the VAT attributable to client entertainment is usually blocked.

HMRC’s guidance on goods and services used for both business entertainment and other business purposes accepts that apportionment may be appropriate where costs are indivisible and used for more than one purpose.

Businesses should keep clear evidence of the employee and non-employee split. This may include attendee lists, invitations, supplier invoices, event schedules and calculations showing how VAT recovery was apportioned.

The VAT People can support businesses with VAT returns, including reviewing whether input tax has been claimed correctly.

What about directors, partners and sole traders?

VAT on entertainment provided only to directors, partners or sole proprietors can be restricted.

This is because HMRC may view the entertainment as having a private benefit rather than being employee entertainment. For example, a meal attended only by directors may not qualify for VAT recovery in the same way as a staff event open to employees generally.

The same issue can arise for sole traders and partners where there are no employees. If the entertainment is essentially for the business owner, VAT recovery may be blocked.

Businesses should take advice before reclaiming VAT on entertainment where the attendees are limited to owners, directors or partners.

Can a business reclaim VAT on hospitality at sporting events?

Hospitality at sporting events is usually treated as business entertainment where clients, potential customers or other non-employees are invited.

This means VAT recovery is normally blocked. The cost may include admission, food, soft drinks, alcohol, accommodation, travel or other hospitality provided as part of the event.

If employees also attend, only the portion relating to staff entertainment may be recoverable. If overseas customers attend, VAT recovery may be possible where the conditions for the overseas customer exception are met.

Are light refreshments at meetings treated as business entertainment?

Light refreshments during a genuine business meeting may not amount to business entertainment.

For example, tea, coffee, water or basic refreshments provided during a meeting may be treated differently from hospitality provided at a restaurant or event. The facts matter. HMRC is more likely to challenge VAT recovery where refreshments become hospitality, or where the purpose is entertaining clients rather than holding a working meeting.

Businesses should consider the nature, scale and context of the cost before claiming VAT.

Can business entertainment be claimed as a business expense?

VAT recovery and corporation tax treatment are separate issues.

A cost may be recorded as a business expense in the accounts, but that does not automatically mean VAT can be reclaimed. VAT on entertainment has its own rules, and HMRC blocks VAT recovery on many business entertainment expenses.

Businesses should also review whether entertainment expenses are deductible for corporation tax or income tax purposes. The VAT position should not be assumed from the accounting or direct tax treatment.

What records should businesses keep?

Businesses should keep detailed records for all VAT claims involving entertainment.

Useful evidence includes:

• Valid VAT invoices
• Attendee lists
• Employee and non-employee split
• Event purpose
• Supplier details
• Overseas customer status
• Apportionment calculations
• Evidence that costs were reasonable
• Notes explaining why VAT was reclaimed or blocked

Good records are especially important for mixed events, overseas clients and entertainment where private benefit may arise.

Common VAT on business entertainment mistakes

Common mistakes include:

• Reclaiming VAT on UK client entertainment
• Treating all hospitality as staff entertainment
• Failing to apportion mixed events
• Not recording whether overseas customers attended
• Assuming business purpose alone allows VAT recovery
• Claiming VAT on directors-only entertainment
• Overlooking an output tax charge where private benefit arises
• Failing to retain evidence for VAT compliance

Incorrect VAT recovery can lead to VAT return errors, HMRC assessments, interest and penalties. Where HMRC has challenged a VAT claim, The VAT People can assist with HMRC assessment reviews.

Find out more about common VAT queries and errors on our frequently asked questions page.

How The VAT People can help

The VAT People advises UK businesses on VAT recovery, VAT reclaim opportunities and VAT compliance.

Our team can review VAT on business entertainment, staff entertainment, client entertainment and mixed hospitality costs to confirm whether VAT has been reclaimed correctly.

Our support can include:

• Reviewing VAT on entertainment expenses
• Identifying where VAT recovery is blocked or available
• Checking staff entertainment and employee entertainment claims
• Reviewing overseas customer entertainment
• Assessing mixed events and apportionment calculations
• Correcting VAT return errors
• Reviewing historic VAT reclaim opportunities
• Supporting HMRC enquiries, assessments and VAT disputes

With 30 years of experience, The VAT People provides practical VAT advice for businesses that need to manage VAT recovery accurately and reduce the risk of HMRC challenge.