All business have certain entertainment expenses. Some would be deductible for the purpose of corporation tax but some are not. Would like to share how companies should treat this kind of expenses.

Entertainment is a helpful and sometimes necessary part of operating a successful company. This may include taking clients out to celebrate a significant achievement or throwing a party for employees to improve their morale. These activities can be costly, but can they be considered a business expense? Are there any tax deductions available for business entertainment expenses?
Keep reading to learn more.
Table of Contents
What Counts as Business Entertainment Expenses?
Client Entertainment Definition & Rules
Is Client Entertainment Tax Deductible?
Staff Entertainment Definition & Rules
Which Company Entertainment Expenses Are Tax Deductible?
What Counts as Business Entertainment Expenses?
It's important to understand how the UK's HM Revenue and Customs (HMRC) views entertainment expenses. According to HMRC, an expense is considered an entertainment expense if it includes hospitality, such as food or drink, accommodation, or tickets to an event. However, the amount that needs to be reported and paid as a tax depends on the type of entertainment, who arranged it, and who attended it. This means that there are different rules for client entertainment and employee entertainment.
Client Entertainment Definition & Rules
So, what are the rules around entertaining your clients? HMRC defines entertainment as “business entertainment” when it is provided free of charge to people who are not current employees of your business.
Client entertainment can be broken down into two categories:
‘Business entertainment of clients’, which includes providing hospitality while discussing a business project or maintaining a client relationship.
‘Non-business entertainment of clients’, which involves providing hospitality to a business acquaintance for social reasons.
Is Client Entertainment Tax Deductible?
In a nutshell, no, client entertainment is not tax deductible. This means that you will need to add the expenses back to your profit when calculating corporation tax. You also won’t be able to claim any VAT back from the expenses either. Whether you’re discussing a project with your client over coffee, or having a meal with a prospective customer, the same rules still apply.
It is, nevertheless, still possible to make client entertainment expenses more tax efficient. One important thing to remember is to always pay through a business, rather than a personal, account when entertaining clients. While the expense is not deductible for Corporation Tax purposes, you will save the income tax you would have paid if you had withdrawn the funds to pay the expenses personally.
Staff Entertainment Definition & Rules
When it comes to the entertainment of staff within your company, there is a very different set of rules. Before we delve into these, we must first examine what constitutes an employee, according to HMRC.
An employee is someone who is on your company’s payroll and is paid a salary. Therefore, this doesn’t include past employees, subcontractors, volunteers, and shareholders who don’t work within the business.
If you entertain anyone other than your employees, it’s considered business entertainment, rather than staff entertainment. As we mentioned in the previous section, you cannot claim tax reduction or VAT on the expense of entertaining clients or anyone who isn’t a current employee.
It’s also worth mentioning that if you’re a sole trader, or a partner in a partnership or an LLP, you do not count as an employee because there is no legal distinction between you and the business. Therefore, you cannot claim tax reduction or VAT on the expense of entertaining yourself.
Which Company Entertainment Expenses Are Tax Deductible?
If you arrange an annual event—such as a summer picnic or Christmas party—that’s accessible to all employees and costs less than £150 per guest attending, this is considered a “qualifying event” by HMRC and is not a taxable benefit for your employees.
However, if any of these three requirements are not satisfied, the entire cost of the event becomes taxable:
If it’s a one-time meal, such as to celebrate a new contract
If certain staff members are excluded
If the cost per head exceeds £150
The rules surrounding business entertainment expenses can be complicated, and often leave many business owners feeling confused. If you’re unsure whether you may claim tax relief or reclaim VAT on a specific expense, you should seek expert guidance from us or other accountants.