Client entertainment

Conditions

• Business entertaining of clients, customers or suppliers is specifically disallowed for tax — even when it is genuinely for business. For a company the cost is added back in the Corporation Tax computation; for a sole trader or partnership it is disallowed in the accounts.
• This covers hospitality of any kind — meals, drinks, event or sports tickets, accommodation — and applies whether the client is in the UK or overseas.
• Staff entertaining is treated separately: an annual function open to all staff (such as a Christmas party) is exempt up to £150 per head per year, including VAT. It is a limit, not an allowance — if the cost per head exceeds £150, the whole amount becomes a taxable benefit, not just the excess.
• Most gifts to clients are also disallowed; a small branded promotional item (under £50, and not food, drink or vouchers) is an exception.

Common mistakes

• Assuming a client lunch is allowable because it was clearly for business.
• Confusing disallowed client entertaining with staff entertaining, which has its own rules.
• Assuming a gift to a client is allowable — most client gifts are disallowed, unless it is a small branded promotional item under £50.

What to keep

• Even though disallowed for tax, keep records to separate entertaining from other costs in the accounts.

Real-world example

A company takes a prospective client to dinner to discuss a contract. The cost can be paid by the business but is added back and not allowed as a tax deduction.

Frequently asked

Related allowances