Last updated: 14 October 2026
How do Christmas hospitality and gifts affect your VAT return?
You can reclaim VAT on a staff Christmas party, because staff entertainment is a business cost. You cannot reclaim VAT on entertaining clients or other non-employees. When you mix the two, apportion the cost. Business gifts are free of output VAT if the total cost to one person is £50 or less, excluding VAT, in any 12 months. Above that, you must account for VAT on the gift.
Staff parties and events
- Employees only: you can reclaim all of the input VAT
- Employees plus guests (partners): guests count as non-employees, so you reclaim VAT on the employees’ share only
- Clients invited: the VAT on the clients’ share is blocked
Example
A party costs £6,000 plus £1,200 VAT for 40 people: 30 staff and 10 clients. The business reclaims 30/40 × £1,200 = £900.
The £150 income tax exemption is different
For income tax and NIC, an annual staff party costing £150 or less a head, including VAT, is not a taxable benefit for employees, if it is open to all staff. That limit has nothing to do with VAT. You can reclaim the VAT on a staff party whatever it costs per head.
Client entertainment
VAT on entertaining clients, suppliers and prospects is blocked, whether it is a meal, drinks, tickets or a hospitality box. It is also disallowed for corporation tax. The only exception is entertaining overseas customers, where VAT can be reclaimed on reasonable hospitality.
Business gifts
| Gift | VAT position |
| Total cost per recipient £50 or less in 12 months, excluding VAT | Reclaim input VAT; no output VAT due |
| Total cost over £50 | Reclaim input VAT, but account for output VAT on the cost |
| Gifts to employees, such as hampers | Similar £50 rule for VAT; check trivial benefits for income tax |
| Samples | No output VAT, with some limits |
Trivial benefits for staff gifts
For income tax, a gift to an employee of £50 or less that isn’t cash or a cash voucher, and isn’t a reward for work, is a tax-free trivial benefit. For directors of close companies, there is an annual cap of £300.
Corporation tax
Staff entertainment is fully deductible for corporation tax. Client entertainment and gifts are not deductible, unless the gift carries a conspicuous advert for your business, costs under £50 a year per person and isn’t food, drink, tobacco or vouchers.
Keeping the right records
Keep the invoice for the event, a guest list showing who was an employee and who wasn’t, and a note of how you worked out the VAT split. For gifts, keep a record of who received what and its cost, so you can show you stayed under £50 per person in the 12-month period. Code staff entertainment, client entertainment and gifts to separate accounts in your bookkeeping, so the VAT and corporation tax treatment is clear at year-end.
Frequently asked questions
Can I reclaim VAT on Christmas hampers for clients?
Yes, if the total gifts to each client are £50 or less excluding VAT. Food hampers are still not deductible for corporation tax.
Can a sole trader with no staff reclaim VAT on a Christmas meal?
No. With no employees, it’s personal or client entertainment.
Is VAT reclaimable on a team-building day?
Yes, as staff entertainment for employees.
Do I need to keep a guest list?
Yes. It supports how you split the VAT.
Related: VAT late filing penalties.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT on staff events and gifts. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
