In this section:
- What you can and can't reclaim VAT on
- Reclaiming VAT on purchases made before VAT registration
- How to calculate VAT from VAT-inclusive amounts
- Reclaiming VAT on items for both business and private use
- Reclaiming VAT on cars and motoring expenses
- VAT and business entertainment and business gifts
- Travel and subsistence: when you can reclaim VAT
- VAT on incidental expenses to clients; disbursements
- Reclaiming VAT on bad debts on goods or services supplied by you
- Dealing with VAT when goods are returned
- Understanding VAT exemption and partial exemption
- Which transaction should go on which VAT return?
VAT and business entertainment and business gifts
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 tax year.
On this page:
- Business entertainment and VAT
- Examples of business entertainment
- Business entertainment vs employee expenses and entertainment
- When you can reclaim VAT on business entertainment
- Mixed business entertainment and business expenses
- Selling goods that have been used for business entertainment
- Business gifts
- More useful links
Business entertainment and VAT
Generally you cannot reclaim VAT on business entertainment expenses. Business entertainment is defined by HMRC as any form of free or subsidised entertainment or hospitality.
The person being entertained may be 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:
- pensioners and former employees
- job applicants and interviewees
- non-employee shareholders
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
Business entertainment vs employee expenses and entertainment
Business entertainment is not the same as employee entertainment.
An employee for VAT business entertainment purposes includes a person employed by you as well as directors, partners or anyone managing the business and helpers, stewards and other people essential to the running of sporting or similar events.
The following employee expenses and entertainment are not business entertainment for VAT purposes. You can generally reclaim VAT on these expenses:
- Employee travel and subsistence when working away from their normal place of work.
Find more information on reclaiming VAT on travel and subsistence
- Employee entertainment or hospitality where only employees, directors or partners participate in the entertainment or hospitality. Examples include office parties, team-building exercises and staff outings.
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.
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 can only reclaim VAT on the proportion of expenses that relate to employee entertainment.
You cannot reclaim any VAT 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 out about reclaiming VAT on travel and subsistence
Get information on when you can reclaim VAT and when you can't
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.
Business gifts
Generally you cannot reclaim VAT on gifts you give to your customers, suppliers or other people connected with your business. However, you can reclaim VAT on the cost of a business gift if the gift meets the following criteria:
- the cost of the gift and any others given to the same recipient doesn't exceed £50 in the same tax year
- the gift is not tobacco, a redeemable voucher or food and drink.
Read more about gifts and samples in the VAT notice on business gifts and samples
Gifts to employees
Read more about business gifts to employees in the VAT guide on business promotions
More useful links
More about business gifts and samples in VAT Notice 700/35
