Client & Staff Business Entertaining

Many businesses entertain clients and customers as part of building relationships, thanking people for their business, or attracting new opportunities. However, the tax treatment of these expenses often surprises business owners.

HMRC has clear rules on what counts as business entertaining and whether the cost can be claimed for tax.

What is Business Entertainment?

HMRC defines business entertainment as providing free or subsidised hospitality to customers, suppliers, or other business contacts. This could include:

• Meals or drinks with clients

• Tickets to sporting events or concerts

• Corporate hospitality

• Social events where clients or contacts attend

These costs may be paid from the business bank account, but the tax treatment depends on who is being entertained.

Entertaining Clients

If you take a client or potential customer out for lunch or provide hospitality, this is normally treated as client entertainment.

Tax treatment

• ❌ Not tax deductible for Corporation Tax or Income Tax

• ❌ VAT usually cannot be reclaimed

• ✔ The business can still pay the cost

This rule applies even if the meeting is genuinely business-related and intended to generate income.

Practical tip

Although the cost is not deductible, it is usually better to pay for client entertainment through the business bank account rather than personally.

If you pay personally and then reimburse yourself, you may end up paying additional personal tax when withdrawing money from the company.

Entertaining Overseas Clients

There is a limited exception for overseas clients.

If the entertainment is:

• For overseas customers, and

• Undertaken for genuine business purposes, and

• Reasonable in scale

then the expense may be tax deductible.

However, the rules are strict and records should be kept showing the business purpose and attendees.

Entertaining Staff

The rules are very different when entertaining employees.

Staff entertaining is normally tax deductible for the business.

Examples include:

• Staff meals

• Team social events

• Christmas parties

• Annual company celebrations

These costs are typically:

• ✔ Deductible for Corporation Tax

• ✔ VAT may be reclaimable (if employees only)

The £150 Per Head Annual Party Rule

Businesses can hold annual staff functions without creating a taxable benefit for employees if certain conditions are met.

The rules:

• The event must be open to all staff (or all staff at a location)

• The total cost must be £150 or less per person per year

• This includes VAT, travel, accommodation, and guests

If the cost exceeds £150 per head, the entire amount becomes taxable, not just the excess.

Employees can also bring guests, but the guest cost still counts towards the £150 per head limit.

What Happens if Clients Attend a Staff Event?

This is where things become complicated.

If an event includes both staff and clients, the costs may need to be split.

For example:

• Staff portion → potentially allowable

• Client portion → not tax deductible

If the event is mainly for clients, HMRC may treat the entire event as client entertaining.

Record Keeping

HMRC expects businesses to keep records for entertainment expenses. You should note:

• Who attended

• The business purpose

• The date and location

• The cost

Keeping good records helps avoid problems if HMRC reviews your expenses.