Understanding VAT on Entertainment Expenses

Written By Latha Bala

What You Can and Can’t Reclaim

VAT on entertainment expenses while running a business is generally not reclaimable, but there are some exceptions.

Here’s a breakdown to help you navigate the rules:

1. Business Entertainment

This refers to entertaining non-employees such as clients, suppliers, or business contacts.

  • VAT is NOT reclaimable on business entertainment expenses.

  • This applies to things like meals, events, or hospitality provided to non-employees, even if it's for business purposes.

HMRC’s view: Business entertainment is a non-business activity for VAT purposes.

2. Staff Entertainment

This refers to entertainment provided exclusively for employees, such as staff parties or team-building events.

  • ✅ VAT IS reclaimable on staff entertainment if:

    • The purpose is to boost staff morale or reward employees.

    • It’s not limited to directors or a small group of senior staff (i.e., it must be available to all staff or a department).

  • ❌ VAT is NOT reclaimable if:

    • The entertainment includes non-employees, such as partners or clients.

    • It's only for directors or shareholders unless they are employees and the entertainment is reasonable.

3. Mixed Entertainment (Staff + Clients)

If entertainment is for both staff and clients, you must apportion the VAT and can only reclaim the part relating to staff.

Need Help Managing accounting for entertainment expenses?

At Satya Accountants, we help businesses stay compliant with HMRC rules while ensuring VAT on entertainment expenses is accounted for correctly. If entertainment is a regular part of your operations, it’s best to speak with us early to ensure proper treatment and avoid costly errors or penalties.

Email: info@satya.accountants


Latha Bala
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