Can You Claim VAT on Staff Entertaining UK?

This is one of the most common VAT questions I am asked and also one of the most misunderstood. Many business owners assume that because something is “for staff” it must automatically be allowable. Others assume the opposite and miss out on legitimate VAT reclaims they are fully entitled to.

In this article, I am going to explain clearly and practically whether you can claim VAT on staff entertaining, how HMRC views different types of events, where the line is drawn between staff and client entertaining, and what evidence you need to protect yourself if HMRC ever ask questions.

I will be speaking from real UK practice rather than theory, because this is an area where small wording differences can completely change the VAT outcome.

What HMRC Means by Staff Entertaining

Before we talk about reclaiming VAT, we need to be clear about what staff entertaining actually is.

Staff entertaining generally refers to costs incurred for the benefit of employees, rather than clients or third parties. This can include things like meals, social events, celebrations, or welfare-related activities.

From HMRC’s perspective, the key question is always the same:

Who is the entertainment for and why?

If the purpose is to reward, motivate, or look after employees, the VAT treatment is very different to entertainment provided to clients or suppliers.

HMRC guidance on this is primarily set out by HMRC and summarised across official guidance on GOV.UK, but as with most VAT topics, the real understanding comes from how the rules are applied in practice.

The Core Rule on VAT and Entertaining

The starting point for VAT is simple:

VAT on business entertaining of clients is not recoverable

VAT on staff entertaining may be recoverable if certain conditions are met

That word “may” is doing a lot of work here.

VAT is reclaimable on staff entertaining only where the cost is incurred wholly and exclusively for employees and not for business promotion or client relationship purposes.

Why Client Entertaining Is Different

It is worth briefly touching on why client entertaining is treated so harshly, because this helps explain the logic behind staff entertaining rules.

HMRC views client entertaining as a business choice rather than a necessity. It is seen as a discretionary expense aimed at generating goodwill rather than directly producing taxable supplies.

As a result:

VAT on meals, drinks, events, or hospitality provided to clients is blocked

This applies even if the entertaining has a clear business purpose

It applies regardless of whether the client relationship generates income

This strict position often surprises people but it is very firmly embedded in UK VAT law.

When VAT on Staff Entertaining Is Claimable

VAT on staff entertaining can usually be reclaimed where the entertaining is genuinely for employees and not linked to entertaining clients or other third parties.

Common examples where VAT is generally reclaimable include:

Staff Christmas parties

Team-building events

Staff meals provided during training

Staff welfare events

End-of-year celebrations for employees only

The key condition is that the entertaining must be for staff as a whole or for a clear group of employees, not selectively provided as a disguised form of client entertaining.

The Importance of “Employees Only”

This is where many businesses fall into difficulty.

If non-employees attend a staff event, the VAT position can change very quickly.

HMRC is clear that if clients, suppliers, or other non-staff individuals attend an event, the VAT must be apportioned or in some cases completely disallowed.

For example:

A staff Christmas party attended only by employees
VAT is generally reclaimable

A Christmas party where staff bring clients or suppliers
VAT relating to those attendees is not reclaimable

A mixed event where staff and clients attend together
VAT must be apportioned between allowable and disallowable elements

This is not an area where “close enough” is good enough. HMRC expects reasonable apportionment backed by logic and records.

VAT on Staff Meals and Food

Food is another area that causes confusion.

VAT on meals provided to staff can be reclaimed in certain circumstances, but not in all.

When VAT on Staff Meals Is Usually Claimable

VAT is usually reclaimable where meals are provided:

On business premises

For all staff or a defined group

As part of normal working arrangements

During training sessions or long meetings

For welfare reasons such as late working

Examples include:

Lunch provided during a full-day staff training course

Food provided to staff required to work late

Meals included as part of an off-site training day

In these cases, HMRC generally accepts that the cost is incurred for business purposes.

When VAT on Staff Meals Is Not Claimable

VAT is usually not reclaimable where meals are:

Provided to individuals on an ad hoc basis

Considered personal rather than business-related

Equivalent to personal subsistence

Linked to entertaining clients

For example, VAT on a regular lunch allowance for one employee would normally be disallowed.

Staff Entertaining vs Staff Subsistence

This distinction matters more than many people realise.

Staff subsistence relates to meals consumed while travelling for work. Staff entertaining relates to social or welfare activities.

VAT on subsistence is generally reclaimable if:

The travel is business-related

The expense is reasonable

There is a valid VAT receipt

VAT on entertaining has additional conditions attached and is more heavily scrutinised.

VAT on Staff Parties and Events

Staff parties are one of the clearest examples of allowable staff entertaining for VAT purposes.

VAT is generally reclaimable on:

Venue hire

Catering

Entertainment

Decorations

Transport provided for staff

As long as the event is primarily for employees and not used as a networking or promotional opportunity, VAT recovery is usually allowed.

It does not need to be a Christmas party. Summer events, milestone celebrations, and team-building days are all treated in the same way.

What About Directors?

Directors are employees for VAT purposes, even if they are also shareholders.

This means:

VAT on staff entertaining that includes directors is still potentially reclaimable

A company with only directors can still qualify for staff entertaining rules

However, HMRC may scrutinise “staff events” more closely where there are very few employees

The key test is still whether the cost is genuinely incurred for staff purposes and not personal enjoyment.

Apportionment Where Events Are Mixed

If an event includes both staff and non-staff attendees, VAT must be apportioned.

Apportionment should be:

Fair

Reasonable

Consistent

Based on clear logic

Common apportionment methods include:

Headcount

Cost per attendee

Separate invoicing where possible

HMRC does not expect mathematical perfection but they do expect evidence that thought has been applied.

Record Keeping and Evidence

This is where businesses often undermine themselves.

To reclaim VAT safely on staff entertaining, you should retain:

Valid VAT invoices

Clear descriptions of the event

Attendee lists where relevant

Notes explaining the business purpose

Apportionment calculations if applicable

If HMRC ever review your VAT return, they will ask why VAT was reclaimed. Being able to answer clearly and confidently makes a huge difference.

Common Mistakes I See in Practice

After years of dealing with VAT, the same errors come up repeatedly:

Reclaiming VAT on client meals incorrectly coded as staff entertaining

Not apportioning mixed events

Reclaiming VAT on personal meals

Poor invoice descriptions

Assuming small amounts do not matter

VAT errors are cumulative. Small mistakes repeated over time can turn into significant assessments.

Interaction with Corporation Tax and Income Tax

It is also important to understand that VAT rules do not always align with corporation tax or income tax rules.

An expense can be:

Allowable for corporation tax

But still blocked for VAT

This is particularly common with entertaining costs. Just because something reduces your taxable profit does not mean VAT is reclaimable.

What Happens If You Get It Wrong

If HMRC determines VAT has been reclaimed incorrectly, they can:

Assess underpaid VAT

Charge interest

Apply penalties based on behaviour

Extend the assessment period if careless or deliberate

The best protection is good advice and good records.

When I Recommend Getting Advice

I always recommend professional VAT advice where:

You host mixed staff and client events

You operate in hospitality or service sectors

You have few employees and high entertaining costs

You are unsure whether something is subsistence or entertaining

HMRC has raised queries previously

VAT is one of those areas where clarity upfront saves stress later.

Final Thoughts on VAT and Staff Entertaining

Yes, you can claim VAT on staff entertaining, but only where it is genuinely for employees and properly supported by records.

The moment clients or personal elements creep in, the VAT position changes and often becomes restricted or blocked entirely.

My advice is always the same. Treat VAT on entertaining with care. Document your decisions. And if something feels borderline, ask before you claim rather than after HMRC ask.

Handled properly, VAT on staff entertaining is straightforward. Handled casually, it is one of the easiest ways to invite unnecessary HMRC attention.