Are Business Entertainment and Meals Out Tax-Deductible? UK Rules Explained 🍴

Understanding what qualifies as tax-deductible business entertainment can be confusing—especially when it comes to client meals, director dining, or staff events like the annual Christmas party. HMRC treats different types of entertaining very differently, and the rules catch many business owners out.

This guide explains, in plain English, the UK tax rules on business meals, client entertaining, director meals out, VAT recovery, and staff function exemptions—so you know exactly what your company can claim, what it cannot, and how to stay safely within the rules.

Read on for the three most common scenarios that business owners regularly get wrong:

1. Entertaining customers, suppliers or employees

(Including directors “discussing business” over dinner.)

⛔ Not allowable for corporation tax (BIM45012)

⛔ Input VAT not recoverable (VAT Notice 700/65)

⛔ Benefit-in-Kind (P11D) Class 1A NI payable at 15% +reporting obligations

Bottom line:

🟠 You can put customer/supplier entertaining through the company, but it’s not tax-deductible and you can’t reclaim VAT.

⛔ Meals out with employees or directors only should not be put through the company (apart from the following exceptions).

2. Annual staff function

Including staff Christmas party, summer BBQ etc.

✅ Allowable for corporation tax — if all of the following conditions are met:

• Open to all employees

• Costs ≤ £150 per person, including VAT, transport, accommodation

• £150 is a limit, not an allowance (exceed it by £1 → whole amount becomes a taxable Benefit-in-Kind)

• Must be a recurring annual event, not a one-off

✅ Input VAT reclaimable (if employees attend and customers do not)

✅ Exempt from Benefit-in-Kind taxes (ITEPA 2003 s264) + no extra reporting👍

3. Directors meal out to "discuss business"

If your company has no staff other than its directors and all directors are dining out together (even if the only directors are husband and wife), then:

Once a year designate a meal out as your "Annual staff function", meet all conditions described above, and: ✅ The cost is Corporation Tax deductible

✅ VAT reclaimable

✅ No Benefit-in-Kind

Yes — your annual wedding-anniversary-style dinner can qualify if structured correctly.

Key Takeaways 📌

🍽️ Customer/supplier entertaining is allowed but never tax-deductible and no VAT can be reclaimed.

🚫 Meals out with only directors/employees don't qualify — unless it’s your Annual Staff Function (limited to £150 per person).

💑 Director-only companies (e.g. husband & wife) can still use the annual function rule if conditions are met.

If in doubt, reach out and ask — it could save you from unnecessary BiK complications!

Source info.

• BIM45012 - Specific deductions: entertainment: meaning of business entertainment: hospitality provided free of charge - HMRC internal manual - GOV.UK

• Business entertainment (VAT Notice 700/65) - GOV.UK

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