What Counts as Business Entertainment?

‍

HMRC defines entertainment as “hospitality or gifts provided to people who are not employees of your business.”

‍

This can include:

• Client meals, coffee meetings, dinners, drinks

• Sporting events, concerts, golf days

• Hospitality boxes

• Gifts (other than small promotional items)

• Any other “treat” provided for free to a non-employee

‍

So far so simple… until we talk tax.

‍

The Big Rule: Client Entertainment Is Not Tax-Deductible

‍

Let’s rip the plaster off early: business entertainment of clients, suppliers, or contacts is not allowable as a corporation tax deduction.

‍

Even if:

• It helped you win a contract

• It was definitely a business meeting

• You picked the cheapest wine on the menu

• “Everyone else does it”

‍

HMRC is crystal clear: client entertainment = no deduction, no VAT reclaim.

‍

This includes:

• Meals and drinks with clients

• Tickets to events you attend with them

• Gifts (unless low-value promotional items – more on this below)

‍

You can pay for it from the business, but it won’t reduce your tax bill. Think of it as a strategic marketing cost funded by post-tax pounds.

‍

So, What Is Allowable? The Good News

‍

Here’s where some relief returns. Not all entertainment is disallowed—just client entertainment.

‍

1. Staff Entertainment (Allowable Within Limits)

‍

Entertainment for employees is deductible for corporation tax and you can reclaim VAT.

‍

This includes:

• Staff lunches

• Staff parties (including the famous Christmas party)

• Team-building events

• Staff entertainment days

‍

BUT there are conditions…

‍

The “£150 Per Head Rule”

‍

For a staff event to be tax-free for employees:

• It must be open to all employees

• It must cost £150 or less per head per tax year

• You can combine multiple events as long as the total stays within the limit

• If you go £1 over, the full amount becomes taxable via a PSA or payroll

‍

Note: Directors count as employees—so owner-managers can benefit too.

‍

2. Promotional Gifts (Allowable)

‍

Promotional items given to non-employees are allowable if they:

• Cost £50 or less,

• Carry a permanent and conspicuous business logo,

• Are not food, drink, tobacco, or vouchers.

‍

Examples:

• Branded pens, notebooks, mugs

• USB drives

• T-shirts or tote bags

‍

This is one of the few exceptions to the “no gifts” rule.

‍

3. Event Costs With a Genuine Business Purpose (Partially Allowable)

‍

If you host an event to promote your business—e.g., a launch, training day, seminar—you can usually claim the proportion relating to employees and the direct business activity, but not the entertainment element for non-employees.

‍

For example, at a product launch:

• Venue hire: allowable

• Staff costs: allowable

• Food, drink, entertainment for clients/guests: not allowable

‍

This split must be done fairly and reasonably, and good records are essential.

‍

The Don’ts: Where Businesses Get Caught Out

‍

Here are the common pitfalls we see:

‍

1. Reclaiming VAT on client meals

VAT on client entertainment is strictly blocked—even if you think it’s a business meeting.

‍

2. Calling client entertainment “marketing” or “staff costs”

HMRC sees through creative labelling. Misclassification can trigger penalties.

‍

3. Treating non-employees as staff

Subcontractors, consultants, and freelancers are not employees. Their entertainment is treated as client entertainment—so non-deductible.

‍

4. Splitting the bill incorrectly

If you’re dining with both staff and clients, you can split the cost proportionally—

but make sure you keep records of who attended and why.

‍

The Do’s: How to Stay Compliant (and Save Tax Where Possible)

‍

1. Keep detailed records

‍

HMRC loves clarity. Capture:

• Who attended

• Their role (employee, client, supplier)

• The business purpose

• Itemised receipts

‍

2. Separate entertainment categories in your accounts

‍

Have dedicated ledger codes for:

• Staff entertainment

• Client entertainment

• Promotional costs

• Events and hospitality

‍

This will save time and protect you if HMRC queries it.

‍

3. Claim what you can claim

‍

Many businesses miss out on deductions for legitimate staff entertainment because they assume “entertainment = bad”. Staff events are often very tax-efficient.

‍

4. Use the £150 rule strategically

‍

Spread events through the year. Plan ahead. Make it work for culture and tax savings.

‍

Final Word: Keep It Clean, Keep It Clear

‍

Business entertainment isn’t complicated once you know the rules—but getting it wrong can be costly. With the right structure and good bookkeeping discipline, you can stay compliant while maximising what’s legitimately allowable.

‍

If you need help reviewing your entertainment policies or setting up clean, HMRC-friendly accounting categories, we’re here to support you.

‍