Business entertainment, business gifts and benefits

This guide defines business entertainment for VAT purposes and explains how the VAT you pay on business entertainment expenses is treated.

Generally you cannot reclaim VAT on business entertainment expenses. Business entertainment is any form of free or subsidised entertainment or hospitality to non-employees.

You can reclaim VAT on employee expenses and entertainment expenses if those expenses relate to travel and subsistence or where you entertain only employees.
When you entertain both employees and other business contacts together, you can only reclaim VAT on the proportion of your expenses that are not used for business entertainment and are used for business purposes.

You cannot reclaim VAT on business gifts unless the cost of the gift and any others given to the same recipient doesn't exceed £50 in the same year.

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Business entertainment and VAT

Generally you cannot claim back the VAT on business entertainment expenses. Business entertainment is defined by HM Revenue & Customs (HMRC) as any form of free or subsidised entertainment or hospitality.

It makes no difference whether the person being entertained is an existing customer, a potential customer or any other person who is not an employee. The following are not employees for VAT business entertainment purposes, and so if any of these are present at an entertainment or other event, it is considered to be business entertainment and you cannot claim back the VAT:

  • pensioners and former employees
  • job applicants and interviewees
  • non-employee shareholders

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Examples of business entertainment

Business entertainment expenses include:

  • food and drink
  • accommodation - eg hotels
  • theatre and concert tickets
  • sporting events and facilities
  • entry to clubs and nightclubs
  • use of capital assets such as yachts and aircraft
  • payments made to third party business entertainment organisers
  • free samples
  • business gifts
  • when you provide entertainment or hospitality only for the directors or partners of your business

Find more information about when you can and cannot reclaim VAT

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When you can reclaim VAT on business entertainment

There are two specific exceptions to the general rule that VAT cannot be reclaimed on business entertainment expenses:

  • Recognised sporting bodies. VAT can be reclaimed if the body provides through necessity free accommodation and meals to amateur sports persons and officials who attend an event.
  • Airlines. VAT can be reclaimed if an airline provides catering and accommodation for passengers who have been delayed.

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Mixed business entertainment expenses and other business expenses

You can only reclaim VAT on the proportion of your expenses that are not used for business entertainment and are used for business purposes. For example, if you entertain employees and customers together, you may be able to reclaim VAT on the proportion of expenses that relate to employee entertainment - see the section in this guide on employee entertainment and expenses.

But you cannot reclaim any VAT at all if the sole purpose of the business entertainment is to entertain a non-employee - for example, if you or your employees act as a host to a non-employee.

Find more information on reclaiming VAT on travel and subsistence

Find more information about when you can and cannot reclaim VAT

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Selling goods that have been used for business entertainment

If you sell goods that you bought for business entertainment, you do not have to charge VAT.

If you sell goods that you bought for a mix of business entertainment and other business use, you must charge VAT on the full selling price.

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Business gifts

A business gift is a gift of goods that is made in the course or furtherance of your business, and you can normally reclaim VAT on its purchase.

Business gifts cover a wide range of items from brochures, posters and advertising matter to expensive goods of the kind given as 'executive presents'.

You do not have to account for VAT on business gifts made to the same person where the total cost of all the gifts does not exceed £50 in any 12-month period (and not the figure of £15 given in VAT Notice 700/35). For this purpose, it is acceptable for you to adopt any 12-month period that includes the day on which the gift is made.

Where the total cost of any business gifts made to the same person in any 12-month period exceeds £50 and you have been entitled to reclaim VAT, you will normally have to account for VAT on the total cost value of all the gifts.

Samples

Sometimes you might give away free samples of your products for people to try. Free samples are treated differently for VAT and you don't have to account for VAT on a free sample you give to another person or business if you meet certain conditions.

Read our guide to samples, exchanges, barters and contras

Gifts to employees

More about business gifts to employees in VAT Notice 700/7

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Employee entertainment and expenses

Employee entertainment

If you provide entertainment to reward your employees for good work or to maintain and improve staff morale, this is considered to be for business purposes and so you can claim back the VAT. Examples could include staff parties, team building exercises, staff outings and similar events.

However, you cannot claim back the VAT in either of these circumstances:

  • When non-employees are included in the event (this is business entertainment, not employee entertainment).
  • When the entertainment is provided only to directors, sole proprietors or partners of the business (where directors or partners attend staff parties together with other employees, you can claim the VAT back).

The following are not employees for VAT purposes. If any of these people are included in an event, then it is considered to be business entertainment - not employee entertainment - and you can't claim the VAT back:

  • pensioners and former employees
  • job applicants and interviewees
  • non-employee shareholders

Employee expenses

People employed by you, and directors, partners or anyone managing the business may be entitled to claim back VAT on certain expenses such as travel and subsistence incurred for the purpose of the business.

Find more information on reclaiming VAT on travel and subsistence

Gifts to employees

More about business gifts to employees in VAT Notice 700/7

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More useful links

More about business entertainment in VAT Notice 700/65

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