Can You Claim VAT on Client Entertainment?

This is one of the most common VAT questions I get asked, and it usually comes up after a business meal, a sporting event, or a round of drinks that felt very much like work at the time. The frustration is understandable. You are entertaining clients to win business, retain relationships, or close deals, so why should the VAT not be recoverable?

The short answer is that in most cases, you cannot reclaim VAT on client entertainment. The longer answer is more nuanced, and this is where many businesses trip up.

In this article, I explain how client entertainment is treated for VAT purposes, why HMRC takes such a strict approach, where the line is drawn between allowable and disallowable costs, and the common grey areas that cause confusion. I will also contrast VAT rules with corporation tax and income tax rules, because these are often mixed up, and I will share how I deal with this in practice when reviewing VAT returns for clients.

What HMRC Means by Client Entertainment

Before looking at whether VAT can be reclaimed, it is essential to understand what HMRC actually means by client entertainment. This is wider than many people expect.

Client entertainment generally covers anything provided free of charge, or at a subsidised cost, to someone who is not an employee of the business, where the purpose is hospitality or relationship building.

This can include:

Meals and drinks with clients or prospective clients

Tickets to sporting events or concerts

Corporate hospitality boxes

Golf days and similar leisure activities

Hotel accommodation provided as hospitality

Events designed to entertain rather than train

HMRC is not interested in whether the entertainment helped you win work. The motive does not change the VAT treatment.

The Core VAT Rule on Client Entertainment

The fundamental rule is simple and very strict.

VAT on business entertainment of clients is not recoverable.

This rule applies regardless of:

The size of the business

Whether the client is existing or prospective

Whether the cost was wholly for business reasons

Whether the expense was reasonable or excessive

Whether the business made money as a result

From HMRC’s perspective, client entertainment is a final consumption expense. The VAT system is designed so that VAT is ultimately borne by the end consumer, and HMRC views client entertainment as consumption by the business rather than a cost incurred to make taxable supplies.

Why HMRC Disallows VAT on Client Entertainment

This is where the logic helps, even if you disagree with it.

HMRC’s position is that client entertainment has a personal consumption element. Even though it may have a business purpose, someone is still eating, drinking, or enjoying an event, and that benefit is not part of the supply you make to your customer.

If VAT were reclaimable on client entertainment, HMRC believes it would open the door to abuse, with private hospitality being pushed through businesses under the banner of client relationships.

As a result, the rule is intentionally black and white.

The Difference Between VAT and Corporation Tax Treatment

One of the biggest sources of confusion is the difference between VAT rules and direct tax rules.

For corporation tax or income tax:

Client entertainment is generally disallowable

The cost is added back when calculating taxable profits

For VAT:

The VAT is blocked entirely

It is not reclaimable at all

This means you can end up with a double restriction, where the cost is not deductible for tax purposes and the VAT cannot be reclaimed.

It feels harsh, but it is deliberate.

What Counts as Client Entertainment in Practice

In real-world accounting, the following are almost always treated as client entertainment for VAT purposes.

Meals and Drinks With Clients

This includes lunches, dinners, coffees, and drinks, even if business is discussed throughout.

If a director takes a client out for a working lunch, the VAT on the meal is not recoverable.

It does not matter whether:

Notes were taken

A contract was signed

The meeting replaced an office meeting

The presence of hospitality is enough to trigger the block.

Sporting and Leisure Events

Tickets to football matches, rugby games, Wimbledon, concerts, or theatre performances are classic examples of client entertainment.

VAT on:

Tickets

Hospitality packages

Food and drink provided at the event

is not recoverable if clients attend.

Corporate Hospitality and Boxes

Corporate boxes are one of the most expensive and most scrutinised areas of client entertainment.

If a hospitality box is used to entertain clients, the VAT is blocked, even if employees are also present.

HMRC does not allow apportionment between staff and clients in most cases, because the primary purpose is entertainment.

Accommodation Provided as Hospitality

If you pay for a client’s hotel as part of entertaining them, the VAT on the accommodation is also blocked.

This applies even if the accommodation is linked to a meeting or event.

Staff Entertainment Is Different

This is where an important distinction comes in.

VAT on staff entertainment is generally recoverable, subject to normal rules.

For example:

Staff Christmas parties

Team meals

Staff training days with meals provided

VAT can usually be reclaimed, because staff are part of the business and not external parties.

However, problems arise when staff and clients are entertained together.

Mixed Entertainment of Staff and Clients

When entertainment involves both staff and clients, the VAT treatment becomes more complex.

HMRC’s general approach is that if clients are present, the VAT is blocked on the whole cost.

In practice, this means:

You usually cannot split the VAT between staff and clients

The presence of clients taints the expense

There are limited situations where apportionment may be possible, but HMRC applies this narrowly and expects clear evidence.

Training Versus Entertainment

One of the most misunderstood areas is the difference between genuine training and entertainment.

If an event is primarily training or education, VAT may be recoverable, even if clients attend.

However, the burden of proof is high.

HMRC looks at factors such as:

The agenda and content

Whether attendance was necessary for the business

Whether hospitality was incidental

How the event was marketed

The proportion of time spent on training versus leisure

A seminar with light refreshments is more likely to qualify as training. A conference followed by a lavish dinner is far less likely.

Promotional Events and VAT

Another grey area is promotional events, such as product launches or open days.

If an event is open to the public or a wide audience and is genuinely promotional, VAT may be recoverable.

However, if the event is invitation-only and focused on entertaining selected clients, HMRC is likely to view it as client entertainment.

In practice, I advise clients to assume VAT is blocked unless the promotional nature is very clear.

What About Subsistence While Visiting Clients?

Subsistence costs can also cause confusion.

If an employee incurs subsistence costs while travelling for work, such as meals while visiting a client’s premises, the VAT may be recoverable.

The key distinction is that the employee is not entertaining the client. They are simply feeding themselves while working away from their normal place of work.

However, if the employee eats with the client and the business pays for both meals, the VAT is blocked.

Alcohol and VAT on Entertainment

Alcohol often triggers questions, but it does not change the fundamental rule.

VAT on alcohol consumed as part of client entertainment is blocked, just like food.

For staff events, VAT on alcohol is usually recoverable, subject to normal rules.

How HMRC Looks at Evidence

During a VAT inspection, HMRC will look closely at entertainment expenses.

They typically review:

Expense descriptions

Receipts and invoices

Attendee lists

Diary entries

Marketing materials for events

Vague descriptions such as “meeting” or “business lunch” often attract attention.

I always advise clients to be clear and honest in expense descriptions. Trying to disguise entertainment as something else can cause more problems than it solves.

Common Mistakes I See in VAT Returns

When reviewing VAT returns, I regularly see the same issues.

These include:

VAT reclaimed on client meals

VAT reclaimed on hospitality tickets

Mixed staff and client events incorrectly treated as staff-only

No distinction between subsistence and entertainment

Poor or missing records

These errors often come from misunderstanding rather than deliberate non-compliance, but HMRC treats them the same way.

What Happens If You Reclaim VAT in Error

If VAT has been incorrectly reclaimed on client entertainment, the position needs to be corrected.

Depending on the amount involved, this may mean:

Adjusting the next VAT return

Submitting a VAT error correction

Paying back VAT plus interest

In some cases, penalties

The sooner the issue is identified, the easier it is to resolve.

How I Advise Clients to Handle Client Entertainment VAT

In practice, my advice is deliberately conservative.

I tell clients to assume VAT is not reclaimable on any cost that involves hospitality for clients unless they have clear professional advice to the contrary.

This avoids disputes, assessments, and stress later.

I also recommend:

Clear expense categories in bookkeeping software

Separate tracking of entertainment costs

Regular reviews of VAT returns

Training staff on what is and is not reclaimable

VAT Versus Commercial Reality

I appreciate that from a business owner’s perspective, client entertainment feels like a cost of doing business.

You entertain clients to win work, retain contracts, and grow revenue.

Unfortunately, VAT law does not follow commercial logic. It follows statutory rules and HMRC interpretation.

Once you accept that distinction, it becomes easier to manage expectations and plan accordingly.

Final Thoughts on Claiming VAT on Client Entertainment

To summarise the position clearly:

VAT on client entertainment is almost always not recoverable

The rule applies regardless of business purpose

Staff entertainment is treated differently

Mixed events usually result in blocked VAT

Training and promotional events require careful analysis

Good records and conservative treatment reduce risk

In my experience, businesses that understand and accept this rule early avoid ongoing VAT problems. Those that push the boundaries often end up repaying VAT later with interest and penalties.

If you are ever unsure, it is far better to ask the question before submitting the VAT return than to deal with the consequences afterwards.

VAT is an area where certainty is worth more than optimism.