Understanding VAT on entertainment is crucial for UK businesses aiming to stay compliant with HMRC regulations and manage their expenses effectively. From staff parties to client dinners, each type of entertainment comes with its own VAT implications. This comprehensive guide breaks down the rules, exceptions, and reclaim strategies, empowering you to make informed financial decisions.
Summary
“This article explores how UK businesses should treat VAT on entertainment, including rules, reclaims, and examples.”
What Counts as Entertainment?
Entertainment refers to hospitality and social activities provided by businesses to clients, staff, or other contacts. This can include meals, events, shows, accommodation, or even recreational trips intended to strengthen business relationships.
Examples of entertainment include:
- Taking clients out to dinner or a show
- Hosting corporate parties or networking events
- Treating staff to reward trips or team-building activities
According to HMRC, entertainment is defined as “hospitality of any kind” (HMRC VAT Notice 700/65 – source).
Summary
“Entertainment includes meals, events, and hospitality provided to clients or staff, which are subject to specific VAT rules.”
The Standard VAT Rate for Entertainment
The general rule is that VAT on entertainment is charged at the standard rate of 20%. This applies to most hospitality expenses unless specifically exempt or zero-rated under other VAT provisions.
There are rare exceptions where different VAT treatment applies:
- Certain charity events or educational entertainment may fall under different VAT treatments.
- Entertainment for children or specific cultural activities might be zero-rated.
Always consult HMRC’s VAT guidelines or a tax advisor for complex scenarios (source).
Summary
“Most entertainment expenses are subject to the standard VAT rate of 20%, with limited exceptions.”
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Input VAT Reclaim Rules
Reclaiming VAT on entertainment can be tricky. In general, VAT on entertainment for clients is not reclaimable, while VAT on employee entertainment may be recovered under certain conditions.
Reclaim Allowed:
- Entertainment for employees (e.g. annual staff parties under £150 per head)
- Trade show hospitality for business leads
- Training sessions with food and materials
Reclaim Not Allowed:
- Client dinners or leisure outings
- Entertainment involving partners or family members
- Gifts worth over £50 (including VAT) not used solely for promotion
Refer to HMRC VAT Input Tax guidance (VAT Notice 700) for a detailed breakdown.
Summary
“Businesses can reclaim VAT on certain employee-related events but not on most client entertainment.”
VAT on Employee Entertainment
Employee entertainment such as staff parties, lunches, or reward trips are generally reclaimable for VAT, provided they’re for genuine business purposes and open to all staff.
Key Threshold:
- If the cost is £150 or less per person (including VAT) annually, it’s classed as a tax-free benefit and qualifies for VAT recovery.
- Exceeding this threshold means none of the VAT is recoverable on the whole cost.
Example: A Christmas party costing £100 per person is eligible for input VAT recovery. If it costs £200 per person, no VAT can be reclaimed at all.
Summary
“Staff entertainment under £150 per head qualifies for VAT recovery; exceeding it makes the entire VAT non-reclaimable.”
VAT on Client Entertainment
Expenses incurred to entertain existing or potential clients are not reclaimable for VAT purposes. This includes meals, drinks, sporting events, or tickets provided to impress or reward business contacts.
Even if business discussions take place during the event, it is still classed as non-reclaimable client entertainment under HMRC rules (source).
Summary
“VAT on client entertainment is non-reclaimable, regardless of whether the expense was for business discussions.”
Mixed Entertainment Events
When events involve both employees and non-employees (e.g. clients, spouses, partners), the VAT must be apportioned accordingly. Only the employee portion qualifies for VAT recovery.
For example, if you host a dinner for 10 people (5 staff, 5 clients), only 50% of the input VAT is potentially reclaimable – and only if the staff portion is within HMRC’s qualifying limits.
Summary
“Mixed events require a split in costs; only the business-related share can qualify for input VAT reclaim.”
Overseas Clients and Entertainment
If you’re entertaining non-UK clients abroad, such expenses are typically outside the scope of UK VAT. You don’t charge VAT, but you also cannot reclaim UK VAT on associated costs incurred domestically.
Careful documentation is essential when entertaining overseas contacts to distinguish these costs for audit purposes.
Summary
“Entertainment provided outside the UK is often outside VAT scope but also ineligible for UK VAT recovery.”
Promotional Items vs Gifts
Items given to clients or customers can either be promotional items or gifts, with different VAT treatments.
- Promotional items: VAT is reclaimable if each item costs £50 or less including VAT and is clearly for marketing.
- Gifts: VAT is not reclaimable unless they fall under specific business promotion exceptions.
GOV.UK provides clear guidance under VAT Notice 700/7 on gifts and promotions (source).
Summary
“VAT can only be reclaimed on promotional items under £50; gifts typically don’t qualify for VAT recovery.”
Trade Shows and Corporate Hospitality
Expenses related to trade exhibitions, including booth setup and materials, can be classified as business entertainment where input VAT is reclaimable. However, this doesn’t apply to general hospitality at the event for non-business guests.
For corporate hospitality events like sports matches or concerts, the reclaim eligibility depends on the guest type and the purpose of the event.
Summary
“Trade show costs are often VAT-reclaimable, but hospitality for non-business guests is not.”
Record-Keeping for VAT Reclaim
Maintaining meticulous records is crucial when dealing with VAT on entertainment. Businesses must retain:
- Invoices and receipts
- Attendee lists
- Agendas or business purpose justifications
- Cost per person calculations
HMRC may request evidence during VAT audits, especially if high-value entertainment claims are made.
Summary
“Strong records, including receipts and guest lists, are essential to support any VAT reclaim on entertainment.”
Final Thoughts
Managing VAT on entertainment in the UK is a nuanced process. While staff events may allow for VAT recovery, most client entertainment does not. Businesses must assess each scenario carefully, apportion costs accurately, and keep comprehensive records.
To ensure full compliance and optimise VAT efficiency, it’s highly advisable to consult a VAT advisor or accountant. Stay up to date with HMRC changes and always refer to their latest guidance.
Summary
“To navigate VAT on entertainment effectively, stay compliant, keep detailed records, and seek professional advice where needed.”
The content provided on TaxCalculatorsUK, including our blog and articles, is for general informational purposes only and does not constitute financial, accounting, or legal advice.
You can also visit HMRC’s official website for more in-depth information about the topic.
