Last updated: 16 October 2026
Is client entertaining an allowable expense?
No. Whether it is lunch with a customer, drinks with a supplier or tickets to a sporting event, the cost of entertaining clients and other non-employees is not an allowable expense for tax. You can still pay for it from the business account and show it in your accounts, but you must add it back when working out taxable profit. This applies to sole traders, partnerships and companies.
VAT on business entertainment
VAT on client entertainment cannot be reclaimed either, with a narrow exception for entertaining overseas customers, where reasonable hospitality may qualify. If an event includes both staff and clients, you can reclaim the VAT on the staff share only.
What counts as entertainment?
| Expense | Tax treatment |
| Meals and drinks with clients or prospects | Not deductible |
| Corporate hospitality and event tickets | Not deductible |
| Staff party open to all employees | Deductible, and tax-free for staff up to £150 a head a year |
| Staff working lunch at a meeting | Usually deductible |
| Subsistence when travelling on business | Deductible, as travel expenses, not entertainment |
| Gifts to clients costing £50 or less per person per year, carrying a business logo | Deductible, if not food, drink, tobacco or vouchers |
| Gifts to charities | Treated under charity rules |
Mixed events
If employees attend an event mainly to look after clients, the cost of the employees’ share is also usually treated as client entertaining, not staff welfare. Where staff and clients attend a genuine staff event together, split the costs and only deduct the staff share.
Example
A marketing agency spends £3,000 on its Christmas party for 15 staff and £1,200 taking three key clients to a football match. The party costs £200 a head, over the £150 limit, so the staff are each taxed on the full £200 unless the company pays through a PAYE Settlement Agreement, but the company can still deduct the £3,000. The £1,200 for the clients is not deductible and the VAT on it cannot be reclaimed.
Sponsorship and promotional events
Sponsorship and marketing events can be deductible if they are mainly about advertising the business to the public, rather than hospitality for particular clients. The line can be fine, so keep records of the business purpose.
Recording entertainment correctly
- Use a separate “entertainment” category in your bookkeeping.
- Note who attended and why.
- Keep receipts showing VAT, so you can reclaim the staff portion where allowed.
Entertaining your own staff
Staff entertainment is treated differently. Costs of entertaining employees are deductible, and an annual event such as a Christmas party or summer barbecue is tax-free for staff if it is open to all employees and costs £150 a head or less in total across the year. Directors of one-person companies can use the exemption too, but keep the event modest.
Frequently asked questions
Can a sole trader claim lunch with a client?
No. It is entertainment and not allowable.
Can I claim my own meal when I am travelling?
Yes, if you are away from your normal place of work on a business trip.
Is a client gift hamper deductible?
No. Food and drink gifts are not allowable, whatever the cost.
Do directors pay tax on client entertaining?
Not if it is genuine business entertaining paid directly by the company.
Related: lunch at a hotel to discuss business, staff party tax rules and hospitality and gifts on the VAT return.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with allowable business expenses. See our small business 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 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
