VAT on client entertaining and business gifts: what is blocked and what is allowed

When you are trying to build strong client relationships, it is natural to want to treat people well. You might take a client for lunch, send a thank-you gift, buy event tickets for a key contact, or give branded items to customers at Christmas.

The problem is that VAT does not always follow normal business logic. Something may feel like a business cost, but that does not automatically mean you can reclaim the VAT.

This is where many UK businesses get caught out. Client entertaining is usually blocked for VAT recovery, while business gifts may be allowed in some cases if they stay within the rules. Getting this wrong can lead to overclaimed VAT, messy records and awkward questions from HMRC.

If you are unsure what should go on your VAT return, working with a VAT return accountant can help you avoid simple but costly mistakes.

The basic VAT rule for client entertaining

In most cases, you cannot reclaim VAT on client entertaining.

Client entertaining usually means providing hospitality, food, drink, accommodation, travel, tickets or other benefits to people who are not your employees. This could include clients, potential customers, suppliers, subcontractors or business contacts.

Common examples include:

• Taking a client out for lunch or dinner
• Buying tickets to a football match, theatre show or concert
• Paying for a hotel stay for a customer
• Hosting drinks for prospects after a meeting
• Paying for a golf day with clients
• Providing hospitality at a business event

Even if the purpose is to win work, keep a client happy or discuss business, the VAT is normally blocked. HMRC treats this as business entertainment for non-employees, so the input VAT is not recoverable.

This is why good VAT return filing services matter. The receipt may show VAT, but that does not mean it should automatically be reclaimed.

What about staff entertaining?

Staff entertaining is treated differently from client entertaining.

If you provide entertainment for your employees, such as a staff party or team event, the VAT may be reclaimable if the cost is genuinely for employees and has a clear business purpose, such as staff welfare or reward.

However, problems start when the event includes both employees and non-employees. If clients, suppliers or guests attend, you normally need to split the VAT. The employee portion may be reclaimable, but the client or guest portion is blocked.

For example, if you hold a dinner for 10 people and 6 are employees while 4 are clients, you should not simply reclaim all the VAT. You would usually need to apportion the cost fairly.

If you regularly host events, it is worth setting clear expense categories in your bookkeeping software. A certified QuickBooks accountant can help you separate staff entertaining, client entertaining and general marketing costs properly.

Are business gifts treated differently?

Yes, business gifts have their own VAT rules.

A business gift is usually a gift of goods given to promote your business or maintain a business relationship. This could include branded merchandise, diaries, calendars, hampers, small products, samples or thank-you gifts.

The key rule is the £50 limit.

You do not normally have to account for output VAT on business gifts to the same person if the total cost of gifts to that person does not exceed £50, excluding VAT, in any 12-month period.

For example, if you send a client a branded gift worth £35 plus VAT, and you do not give them any other gifts in the same 12-month period, the VAT may be reclaimable if the gift is for business purposes and you have a proper VAT invoice.

But if you give the same person several gifts and the total cost goes over £50 excluding VAT in a 12-month period, you may need to account for output VAT on the gifts if you reclaimed input VAT when buying them.

This is where VAT accountants services can be useful, especially if your business sends gifts to several clients, contacts or employees throughout the year.

Examples of gifts that may be allowed

Business gifts may include:

• Branded notebooks, pens or calendars
• Product samples
• Small thank-you gifts to customers
• Branded bags, mugs or stationery
• Goods given as part of a business promotion
• Trade customer gifts below the £50 limit

The important points are that the gift should be for business purposes, you should have a valid VAT invoice, and you should keep track of the total value given to each person.

If your records are poor, it becomes harder to prove that a gift stayed within the limit. That can create problems when preparing VAT returns services for your business.

Gifts that can cause VAT problems

Some gifts are more difficult than others.

High-value gifts are the obvious risk. If you send a client a £120 hamper and reclaim the VAT, you may also need to account for output VAT because the value exceeds the £50 limit.

Food, drink and vouchers can also be tricky, depending on how they are used and whether they form part of a wider promotion. Gift cards and vouchers have their own VAT rules, so you should not assume they are treated in the same way as ordinary goods.

Personal gifts are another issue. If you buy something for a friend, relative or personal contact, that is not a business gift just because you paid from the business account. VAT on personal purchases is not reclaimable.

If you want peace of mind, vat accountants can review your expense categories before your VAT return is submitted.

Client entertaining vs marketing: what is the difference?

This is a common area of confusion.

Marketing costs are often allowable for VAT purposes if they are genuine business expenses. For example, advertising, printed leaflets, online campaigns, website costs and branded promotional materials may be valid business costs.

Client entertaining is different because it involves hospitality or enjoyment provided to specific people. A restaurant meal with a potential client is not the same as running a paid advert. A box at a sports event is not the same as printed marketing material.

The purpose may still be commercial, but the VAT treatment is not the same.

This is why you should not group all “client relationship” costs into one account. It is much safer to separate:

• Advertising and marketing
• Branded promotional goods
• Client entertaining
• Staff entertaining
• Business gifts
• Personal or owner drawings

Good bookkeeping makes your VAT position much clearer. For local support, Asmat & Co provides trusted accountancy services in Slough for businesses that want accurate, practical help with their accounts.

What records should you keep?

For VAT purposes, you should keep clear records for entertaining and gifts. This includes:

• The supplier invoice or receipt
• The VAT amount charged
• The date of the expense
• The name of the person or business receiving the gift or hospitality
• Whether the person is an employee, client, supplier or prospect
• The business reason for the expense
• The value of gifts given to the same person over 12 months

For mixed events, keep a note of who attended. Without that, it can be difficult to justify how much VAT you reclaimed and how much you blocked.

If you trade in Berkshire or nearby areas, accountants in Reading can also help you keep your VAT and business records organised.

Common mistakes businesses make

One of the most common mistakes is reclaiming VAT just because a receipt shows VAT. The VAT shown on a restaurant bill, hotel invoice or event ticket does not mean you are entitled to claim it back.

Another mistake is treating all gifts as marketing. A branded pen given to customers at an exhibition is very different from an expensive bottle of wine sent to one client.

Businesses also forget the £50 limit applies to the same person over a 12-month period. It is not just a limit per gift.

You should also be careful with director-only events. If entertainment is only for directors or partners, and not for staff generally, VAT recovery may be blocked because the cost may not be seen as being used for a proper business purpose.

If your VAT records are already messy, a self-assessment tax return accountant can also help you understand how business expenses affect your wider tax position.

Quick guide: what is blocked and what may be allowed?

• Client lunch or dinner: normally blocked.
• Client event tickets: normally blocked.
• Hotel accommodation for a customer: normally blocked.
• Staff party for employees: may be reclaimable.
• Mixed staff and client event: employee portion may be reclaimable, client portion blocked.
• Branded gifts under £50 per person in 12 months: may be allowed.
• Business gifts over £50 per person in 12 months: output VAT may be due if input VAT was reclaimed.
• Personal gifts: not reclaimable.
• Marketing and advertising costs: normally reclaimable if they are genuine business costs and you hold valid VAT invoices.

Because the rules are detailed, getting advice from vat specialist accountants can help you avoid overclaiming VAT or missing genuine claims.

Do not leave VAT treatment to guesswork

Client entertaining and business gifts can be useful for your business, but the VAT treatment needs care. The safest approach is to record the expense properly at the time, separate entertaining from marketing, track gifts by recipient and check the VAT treatment before submitting your return.

A small error repeated every quarter can soon become a larger VAT issue.

At Asmat & Co, we help businesses keep their VAT records clean, accurate and compliant. Whether you need regular VAT return support, bookkeeping help or practical advice before your next submission, our team can guide you clearly.

Contact Asmat & Co today and let our team help you manage your VAT with confidence.

Frequently asked questions

Can you claim VAT on client entertaining?

In most cases, no. VAT on client entertaining is normally blocked. This includes meals, drinks, event tickets, accommodation and hospitality provided to clients, prospects or suppliers.

Can you reclaim VAT on business gifts?

You may be able to reclaim VAT on business gifts if they are given for business purposes, you have a valid VAT invoice and the total cost of gifts to the same person does not exceed £50 excluding VAT in a 12-month period.

What is the £50 VAT rule for business gifts?

The £50 rule means you do not normally have to account for output VAT on business gifts to the same person if the total cost of gifts to that person stays at £50 or less, excluding VAT, in any 12-month period.

Can you claim VAT on staff entertaining?

VAT on staff entertaining may be reclaimable if the event is genuinely for employees. If clients, suppliers or other guests also attend, you may need to split the VAT and block the non-employee portion.

Are client gifts tax deductible in the UK?

Client gifts can be complicated because VAT and tax rules are not always the same. Some promotional gifts may be allowable, but expensive gifts, food, drink or personal gifts may cause issues. You should check the VAT and tax treatment before claiming them.