VAT on client entertaining cannot be reclaimed — the input tax block is one of the most misunderstood rules in UK VAT. But staff entertaining is reclaimable, and the distinction matters enormously for how you plan and report business hospitality costs. Here is the full picture for 2026/27.
The Basic Rule: Entertainment VAT Is Blocked
Under the Value Added Tax (Input Tax) Order 1992, input VAT on business entertainment is specifically blocked. This means VAT-registered businesses cannot recover the VAT paid on:
- Restaurant meals for clients or prospects
- Drinks at a bar with suppliers
- Corporate hospitality tickets (sport, concerts, theatre)
- Golf days and leisure events for clients
- Hotel accommodation for clients
- Any other hospitality provided to third parties
The block applies regardless of the commercial purpose. Taking a client to lunch to discuss a £1 million contract? VAT on the lunch is still blocked.
Staff Entertaining: The Exception
Input VAT on entertaining your own employees is recoverable as long as:
- The entertaining is provided for the benefit and welfare of staff
- It is available to all employees (or a clearly defined group, e.g. all staff at a particular location)
- The event is not primarily for directors or shareholders only
| Scenario | VAT recoverable? |
|---|---|
| Staff Christmas party (all staff) | Yes |
| Team lunch (all team members) | Yes |
| Client dinner | No |
| Mixed event (staff + clients) | Apportion — staff element only |
| Director-only “team lunch” | No — not genuinely available to all staff |
| Working lunch (sandwiches, in office) | Yes — food for employees at work |
Mixed Events: How to Apportion
If an event includes both employees and non-employees (for example, a Christmas party that clients attend), you must apportion the VAT and recover only the staff portion.
Example: A Christmas dinner costs £3,000 + £600 VAT. 40 people attend: 30 employees and 10 clients.
- Employee proportion: 30/40 = 75%
- Reclaimable VAT: £600 × 75% = £450
- Blocked VAT: £600 × 25% = £150
Key VAT Figures 2026/27
| Rate / Amount | |
|---|---|
| Standard rate VAT | 20% |
| VAT registration threshold | £90,000 turnover |
| Annual staff party exemption (Income Tax/NI per head) | £150 per employee |
| Input VAT block: client entertaining | 100% blocked |
| Input VAT: staff entertaining | Fully recoverable |
Corporation Tax Treatment: Same Principle
The VAT block aligns with the Corporation Tax treatment of entertainment:
| Expense | VAT reclaimable? | Corporation Tax deductible? |
|---|---|---|
| Client/prospect entertaining | No | No |
| Staff entertaining | Yes | Yes |
| Subsistence (employee on business travel) | Yes | Yes |
| Working lunch (lunch provided at office) | Yes | Yes |
| Gifts to clients (non-food, under £50/year) | Depends | Yes (within limits) |
Client entertainment is a double non-deduction — no VAT recovery and no Corporation Tax relief. The full cost is borne out of post-tax profit.
Worked Example: Director’s Dinner with Client
Tom is a limited company director. He takes a client to dinner and pays £200 + £40 VAT = £240 total.
- VAT on the bill: £40 — blocked, cannot reclaim
- Corporation Tax deduction: £200 — not allowed, client entertainment
- Tax saving: £0
- Full £240 comes from company cash — no relief whatsoever
Compare this to a staff meal:
Tom takes his three employees to lunch. The bill is £120 + £24 VAT = £144 total.
- VAT: £24 — fully reclaimable (net cost: £120)
- Corporation Tax deduction: £120 at 25% saves £30
- Net cost to company: £120 − £30 = £90
Gifts to Clients: A Limited Alternative
While entertaining is blocked, business gifts to clients are treated differently. You can reclaim VAT on gifts (and deduct for Corporation Tax) provided:
- The gift costs no more than £50 per person per year (at cost, excluding VAT)
- The gift is not food, drink, tobacco, or a voucher
- The gift carries a conspicuous advertisement for your business
Gifts over £50, or food and drink gifts, are treated as entertainment and the input VAT block applies.
Common Mistakes
| Mistake | Correct treatment |
|---|---|
| Reclaiming VAT on a “business lunch” with a client | Not allowed — client entertaining |
| Not reclaiming VAT on a staff team lunch | Allowed — staff entertainment |
| Treating a directors-only dinner as staff entertaining | Not allowed — must be available to all employees |
| Reclaiming full VAT on a mixed staff/client event | Must apportion |
See our VAT registration guide, limited company expenses guide, and Self Assessment guide.