Can I Claim Client Lunch as a Business Expense?
No - HMRC specifically disallows business entertainment expenses for tax purposes.
What HMRC Says
Business entertainment (including client meals) is not tax-deductible, even if it's clearly for business purposes. This is one of the most misunderstood rules.
When You Can Claim
- None - client entertainment is never tax deductible
When You Cannot Claim
- Taking a client to lunch
- Client dinners
- Drinks with potential customers
- Hospitality at events
Good to Know
Accounting note: You can still put it through the company accounts, but it won't reduce your tax bill
Understanding Client Lunch Expenses
This is arguably the most frustrating rule in UK tax law for company directors. No matter how clearly business-related the meal is, HMRC explicitly disallows the cost of entertaining clients, suppliers, or any business contacts. The legislation under ITTOIA 2005 s.45 and CTA 2009 s.1298 is absolute: business entertainment is not deductible for tax purposes, full stop.
The logic behind the rule is that HMRC considers entertainment to have a duality of purpose - it benefits the recipient personally (they get a free meal) and the giver commercially (building a business relationship). Because of this duality, HMRC decided to block the deduction entirely rather than try to distinguish between genuine business meals and disguised personal hospitality. The rule applies regardless of whether the meal clearly generates business, and regardless of how modest the cost.
What catches many directors out is the distinction between client entertainment and staff entertainment. If you take your employees for lunch, that cost is deductible (subject to certain conditions around annual events and the £150 per head limit). But the moment a client or prospective client joins the table, the entire meal becomes entertainment and loses its deductibility. Some companies split bills to separate staff subsistence from client entertainment, which is acceptable if done genuinely.
The VAT position mirrors the income tax treatment. You cannot reclaim input VAT on business entertainment costs. There is one exception: if you entertain overseas customers (not UK-based), the VAT on that entertainment can be reclaimed, though the cost still is not deductible for corporation tax. This is a niche rule that only applies to a small number of businesses.
Despite the tax treatment, you should still record client entertainment in your company accounts. It is a legitimate business cost that reduces your accounting profit, even though it must be added back when calculating your taxable profit. This matters for understanding your true business costs. Many accounting software packages have a specific entertainment category that automatically handles the tax disallowance on your corporation tax return.
Real-World Examples
Director takes a client for lunch
Ben takes a key client to a restaurant in London, spending £85 on lunch. Despite the meeting resulting in a £50,000 contract renewal, the £85 is not deductible for corporation tax. Ben records it in his accounts under entertainment and ensures it is added back on the CT600 return. He cannot reclaim the VAT either.
Buying coffees for a prospective client
Sophie meets a potential customer at a café and pays £9.50 for two coffees. Even at this small amount, it is technically client entertainment and not tax-deductible. In practice, many directors put such small amounts through subsistence, but strictly speaking, any expenditure on a non-employee business contact is entertainment.
Team lunch that includes a client
James hosts a working lunch for his team of four plus one client. The total bill is £120. The client's portion (roughly £24) is entertainment and non-deductible. The staff portion (£96) is deductible as a staff welfare cost. James should split the receipt and code the amounts separately in his accounts.
Entertaining overseas customers
Maria's export business hosts a visiting delegation from a German customer at dinner, costing £250 plus £50 VAT. The £250 is still not deductible for corporation tax. However, because the guests are overseas customers, Maria can reclaim the £50 input VAT. This is a specific exception for overseas entertainment only.
Common Mistakes to Avoid
- Assuming that because a meal is clearly for business purposes, it must be tax-deductible - the entertainment disallowance applies regardless of the business justification
- Coding client entertainment as subsistence or staff welfare to avoid the disallowance - this is incorrect and could attract penalties in an HMRC enquiry
- Trying to reclaim VAT on client entertainment - VAT on UK business entertainment is blocked just like the corporation tax deduction (overseas customer entertainment is the sole exception)
- Failing to record entertainment expenses in the accounts at all - they should still be recorded for management accounts purposes, just disallowed on the tax return
Frequently Asked Questions
Why are client lunches not tax deductible in the UK?
HMRC considers business entertainment to have a dual purpose - commercial benefit for the host and personal benefit for the guest. Rather than trying to determine which meals are genuinely business-related, the legislation blankets all client entertainment as non-deductible. This rule has been in place for decades and shows no sign of changing.
Can I put client entertainment through my company accounts?
Yes, and you should. The expense is a real business cost and should be recorded in your accounts. However, it must be added back (disallowed) when calculating your taxable profit for corporation tax purposes. Your accountant or software should handle this as a standard tax adjustment.
What is the difference between client entertainment and staff meals?
Staff meals (for employees only) are generally deductible as a business expense. Client entertainment (any meal involving a non-employee business contact) is never deductible. The distinction matters: if a client joins a staff lunch, their portion becomes entertainment. Keep the costs separate in your records.
Can I reclaim VAT on a client lunch?
No, unless your guests are overseas customers. VAT on UK business entertainment is not recoverable. The only exception is entertaining overseas customers (not UK-based), where input VAT can be reclaimed even though the cost remains non-deductible for corporation tax.
Is there a limit on how much I can spend on client entertainment?
There is no spending limit, but since the cost is not tax-deductible, every pound comes directly from your post-tax profits. There is no tax benefit to spending more on entertainment. Budget for it as a genuine business development cost, but understand that the tax system offers no relief.
Source: HMRC BIM45000 - Specific deductions: entertainment and gifts
Stop guessing what you can claim
AccountsOS automatically categorizes your expenses and tells you exactly what's claimable. No more missed deductions.
Try Free for 14 Days