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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
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.
On this page:
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:
Business entertainment expenses include:
There are two specific exceptions to the general rule that VAT cannot be reclaimed on business entertainment 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.
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.
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.
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.
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:
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:
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.