VAT on staff parties and client entertainment

You can reclaim VAT on a staff Christmas party, but you cannot reclaim VAT on entertaining UK clients. When staff and guests attend the same event, only the staff share of the VAT is reclaimable. These rules are in HMRC’s VAT Notice 700/65, last updated on 3 June 2026.

Can you reclaim VAT on a staff party?

Yes. HMRC treats entertainment for employees as wholly for business purposes, because it rewards staff and builds morale. VAT on staff parties, team-building events and staff outings is input tax and you can reclaim it in full, subject to normal VAT reclaim rules.

There are two exceptions:

• entertainment provided only for directors, partners or sole proprietors
• costs incurred only to entertain a non-employee hosted by a member of staff

The VAT rule is separate from the £150 income tax exemption. A party costing £200 a head is taxable for staff, but its VAT is still reclaimable. See the £150 staff party exemption.

Why is VAT on client entertainment blocked?

The law stops you reclaiming it. Article 5 of the VAT (Input Tax) Order 1992 (SI 1992/3222), made under section 84 of the VAT Act 1994, blocks input tax on business entertainment. HMRC’s VIT43200 defines it as free hospitality of any kind for people who are not employees.

Entertainment covers:

• food and drink
• hotel accommodation
• theatre and concert tickets
• sporting events and club entry
• use of yachts or aircraft for entertaining

Only the entertainment element is blocked. If you buy something used partly for business and partly for entertaining, you can reclaim the business share.

Who counts as an employee for VAT?

HMRC’s June 2026 update confirmed who is and is not staff for these rules.

Self-employed people you treat like employees count as staff for subsistence only, not for entertainment. The notice does not cover agency workers.

How do you split VAT at a mixed event?

You reclaim the VAT that relates to staff and treat the guests’ share as blocked. HMRC’s VIT43600 says that where staff and guests attend in roughly equal numbers, you can reclaim only 50% of the VAT.

A simple head-count split works for most parties:

1. Take the VAT on the invoice, for example £2,000.
2. Count staff and guests, for example 40 staff and 10 partners.
3. Reclaim the staff share: 40 out of 50 is 80%, so £1,600.
4. Treat the other £400 as blocked.

If the main purpose of the event is to entertain clients, the rule changes. VAT on staff who attend to host clients is also blocked.

What about directors and sole traders?

VAT on entertainment for directors or partners alone is not input tax, because HMRC does not accept it serves a business purpose. A directors’ dinner is therefore not reclaimable. When directors or partners attend a staff party with other employees, you do not need to apportion; you reclaim the whole amount.

A sole trader with no employees cannot reclaim VAT on their own entertainment. Subsistence is different: meals and hotels when working away from your normal place of business fall under VAT Notice 700, not the entertainment rules.

Can you reclaim VAT on entertaining overseas customers?

Yes, within limits. An overseas customer is one not ordinarily resident or carrying on business in the UK; the Isle of Man counts as the UK here. The restriction for these customers was withdrawn in November 2010.

The cost must be for a business purpose and reasonable in scale and character. HMRC says golf days, track days, evening meals and nightclub trips are unlikely to pass that test. Where the guest gets a private benefit, a private use charge applies, which cancels the VAT you reclaimed. You can instead simply not claim the VAT.

Which applies to you?

• If it is a staff-only Christmas party: reclaim all the VAT.
• If staff bring partners: reclaim the staff share only.
• If you take a UK client to lunch: no VAT reclaim.
• If it is a directors-only dinner: no VAT reclaim.
• If you provide sandwiches at an office meeting: HMRC accepts basic refreshments so the meeting can continue do not trigger a private use charge.
• If you give clients gifts rather than hospitality: the business gifts rules in VAT Notice 700/7 apply instead.

What to do now

1. Set up separate ledger codes for staff entertainment and client entertainment.
2. Ask venues to show the number of guests on the invoice.
3. Record staff and guest numbers for each mixed event.
4. Check directors-only events are not in your VAT claim.
5. Review your next VAT return before filing.

For the income tax side of client hospitality, see client entertainment tax rules.

Frequently asked questions

Can I claim VAT back on a staff Christmas party?

Yes. VAT on staff parties is reclaimable in full, as long as the event is not for directors or partners only.

Can I reclaim VAT on client entertainment?

No, not for UK clients or non-customer business contacts. The VAT is blocked by the VAT (Input Tax) Order 1992. Overseas customers are the main exception.

What if staff bring partners to the party?

You reclaim only the VAT relating to staff. HMRC allows 50% where staff and guests attend in roughly equal numbers.

Are directors employees for VAT entertainment rules?

Yes, at a staff party with other employees. VAT on entertainment for directors only is not reclaimable.

Is VAT on meeting refreshments reclaimable?

HMRC accepts that basic food and soft drinks so an office meeting can continue do not trigger a private use charge. Alcohol, or a meal out after the meeting, does not pass the strict business purpose test.