Have you ever asked yourself if you can claim VAT on business entertaining? 

The answer isn’t always straightforward! HMRC’s VAT rules treat staff entertainment and client entertainment very differently. Some expenses—like team-building events for employees—qualify for VAT recovery, while wining and dining clients usually doesn’t.  

Let’s break down the key differences between staff and business entertainment expenses and clear up which types of expenses you can and can’t claim VAT on. 

What’s the difference between staff and business entertainment expenses? 

The key difference comes down to who you’re entertaining and why. 

Staff entertainment is all about your employees. Think team-building days, Christmas parties, or a summer BBQ to reward hard work. The goal? Boost morale, encourage teamwork, and make your employees feel valued. 

Business entertainment on the other hand, is focused on clients, prospects, or suppliers. This includes things like taking a potential client out for dinner, treating them to a sports event, or organising a fancy networking drinks reception. The aim here is to strengthen relationships and potentially win more business. 

Can you claim VAT on business entertaining?

In most cases no. You can’t reclaim VAT on business entertainment expenses like client dinners, tickets to events, or free hotel stays. HMRC sees these as perks rather than costs that are wholly and exclusively for business purposes—so they don’t qualify for VAT recovery. 

That said, there are some exceptions. For instance, if you’re hosting an overseas client and providing reasonable hospitality—like tea, coffee, and sandwiches during a business meeting—you can reclaim the VAT. The key is that the hospitality must be for an overseas client, it must be directly linked to business discussions, and it mustn’t be excessive. 

Think of it this way, if you take an overseas client to a Michelin-starred restaurant with an à la carte menu, HMRC would likely see it as entertainment rather than a business necessity—so no VAT recovery. But if you provide a simple working lunch in the office, that’s more acceptable. 

Can you claim VAT on staff entertainment? 

Yes, you can claim VAT on staff entertainment—but only if certain conditions are met. 

Think of it like this, if you throw a Christmas party for all your employees to thank them for their hard work, you can reclaim the VAT on the cost of the event. That’s because the entertainment is for a business purpose (staff morale and appreciation), and it’s available to all employees—not just the directors or business owners. 

However, if a company director takes a few clients and a couple of senior managers out for a fancy dinner in London, that wouldn’t qualify. Even though some employees are there, they’re acting as hosts to non-employees, which means the VAT on that meal isn’t recoverable. 

Can you claim VAT on client entertainment? 

No, you generally can’t claim VAT on client entertainment. 

Let’s say you take a potential client out for dinner to impress them and hopefully win some business. Even though this is a common part of doing business, HMRC sees it as an unnecessary expense rather than a business essential—so you can’t reclaim the VAT on that meal. 

However, there are some grey areas. For example, if your company sponsors a big industry conference where clients are entertained, but you also get significant brand exposure, you might be able to reclaim some VAT.  

What details do you need to claim VAT on business entertaining? 

By now you know that the only type of business entertainment where VAT can be reclaimed is staff entertainment. 

To claim VAT on staff entertainment, it’s important to keep accurate records—this way, if HMRC ever has any questions, you’ll be able to show that the expenses meet the necessary criteria. 

Let’s say you throw a team-building day for your employees at a go-karting track. To reclaim the  

VAT, you’d need: 

1. VAT receipts: the venue should provide a proper VAT invoice showing the total cost and VAT amount. 
2. Proof it was for your employees: a guest list or internal invite showing it was a staff-only event (and not just for directors). 
3. Business purpose: something to show that the event was for team building, not just a fun day out.  

It’s also a good idea to digitise your receipts and keep them on file for at least four years—just in case HMRC wants to check your VAT return later.  

Keep track of all your business, staff and client entertainment expenses

With Capture Expense, you can effortlessly track, digitise, and apply the correct VAT rates to all your business, staff, and client entertainment expenses.  

Stay HMRC-compliant, save time, and never miss a reclaim opportunity. Book a personalised demo today and see how easy expense management can be!