Is Client Entertainment Tax Deductible

Entertaining clients can feel like a necessary part of doing business. Whether it's a lunch meeting, tickets to a sporting event, or hosting a corporate dinner, these gestures help maintain relationships and win new work. But can the cost of entertaining clients be deducted from your tax bill?

In the UK, the general rule is that client entertainment is not tax deductible. HMRC takes a strict view of business hospitality, particularly when it involves entertaining customers, suppliers or potential clients. Even though these costs may be legitimate business expenses, they are not usually allowable when calculating your tax liability.

This article explains what counts as client entertainment, how the tax rules apply, and when exceptions might exist for claiming relief.

What Is Client Entertainment?

Client entertainment refers to any hospitality or event provided to people outside your business with the intention of building or maintaining business relationships. It can include:

• Taking a client out for lunch or dinner

• Buying tickets to a concert, football match or theatre for a potential customer

• Paying for drinks at a networking event

• Hosting a hospitality box at a sports venue

• Organising corporate events or away days for customers

Entertainment can be formal or informal, and it covers both goods and services provided free of charge or at a reduced rate to a client or contact.

The key point is that client entertainment is directed at non-employees. The tax treatment for staff entertainment is different and more generous.

Are Client Entertainment Costs Tax Deductible?

No, client entertainment costs are not deductible when calculating your business’s taxable profits. HMRC considers these to be non-allowable expenses, regardless of whether the expenditure is reasonable or connected to winning business.

This rule applies to:

• Sole traders

• Partnerships

• Limited companies

The restriction applies to both Income Tax (for unincorporated businesses) and Corporation Tax (for companies). It means:

• You can record the cost in your accounts for completeness

• But you must add it back when calculating your tax liability

So even though the business pays for the cost, it gets no tax relief on that amount.

Example: Corporation Tax and Entertainment

If your limited company spends £1,000 on entertaining clients over the year, and your total profits before tax are £50,000, you must:

• Exclude the £1,000 from your allowable expenses

• Pay Corporation Tax on the full £50,000

• You cannot reduce profits to £49,000 for tax purposes

The entertainment is treated as a business cost for accounting purposes but disallowed for tax purposes.

Can VAT Be Reclaimed on Client Entertainment?

In most cases, VAT on client entertainment is not recoverable, even if you are VAT registered. This includes:

• Meals and drinks

• Event tickets

• Travel and accommodation linked to entertaining a client

HMRC's rules treat client entertainment as a private benefit, meaning the VAT cannot be reclaimed. There are very limited exceptions, such as if the client is from overseas and the entertainment is wholly for business discussions, but even then the criteria are very narrow and often not practical.

VAT may be recoverable if you are entertaining employees or suppliers who are not classified as business contacts, but professional advice is strongly recommended before attempting a claim.

What Counts as Business Entertainment?

Business entertainment includes any form of hospitality that is not directly part of your trade but is intended to influence a relationship. This can extend to:

• Gifts to clients worth more than £50

• Free samples or branded items given to non-customers

• Meals or drinks outside of standard business meetings

However, working lunches where food is incidental to the meeting may not be classed as entertainment, particularly if taken on your business premises without any form of hospitality.

For example:

• Buying sandwiches during an on-site client meeting may be acceptable

• Taking a client out to a restaurant for a sit-down meal is entertainment

Where the line falls depends on the setting, value and purpose of the expense.

Entertainment of Overseas Clients

There is a small exception where entertainment of overseas clients may be tax deductible for UK companies. The rules are strict, and relief is only available if:

• The client is not ordinarily resident in the UK

• The entertainment is “reasonable” and occurs during a business visit

• The company maintains full records of the expense and the client details

Even in these cases, VAT is not usually recoverable. Claims must be supported by documentation showing the business necessity of the expense.

Employee Entertainment vs Client Entertainment

It is important to distinguish between employee entertainment and client entertainment, as they are treated differently for tax purposes.

Employee entertainment can be tax deductible and exempt from tax as a benefit in kind if:

• It is available to all staff

• It is not part of salary or a reward for work done

• The total cost does not exceed £150 per employee per tax year

• It relates to staff functions such as Christmas parties or team-building days

If you provide entertainment for both staff and clients at the same event, the costs must be apportioned. Only the part that relates to employees is allowable for tax and VAT purposes.

Should You Record Client Entertainment in Your Accounts?

Yes. Even though client entertainment is not tax deductible, you should still record it properly in your accounting system. This helps with budgeting, transparency, and ensuring that the correct amount is disallowed when preparing your tax return.

You should:

• Categorise it clearly as “non-allowable business expenses”

• Keep receipts and details of attendees

• Ensure that client and staff entertainment are separated

Well-kept records will help your accountant prepare accurate accounts and avoid under- or over-claiming expenses.

Is Client Entertainment Ever Worth It?

Even though client entertainment is not tax deductible, that does not mean it is unwise. Building strong business relationships can result in long-term value, and in many industries, hospitality is part of maintaining client expectations.

The key is to treat it as a marketing or relationship-building expense rather than a tax-saving tool. If it leads to new business, stronger client loyalty or improved visibility, it may still be a worthwhile investment, even if it offers no tax advantage.

Just be aware that neither the cost nor the VAT will reduce your tax bill.

Conclusion

Client entertainment is not tax deductible in the UK. Whether you are treating a client to lunch or hosting a corporate event, these expenses must be added back when calculating taxable profits. They are also excluded from VAT recovery in most cases.

While the cost may be justifiable as a business development activity, it does not offer tax relief. Companies and self employed individuals should keep records, categorise entertainment costs separately, and make sure they do not inadvertently include them as deductible business expenses.

If in doubt about whether an expense qualifies for tax relief or VAT recovery, seek advice from a qualified accountant. Clear guidance and good record keeping will help ensure your business remains compliant and financially well managed.