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ExpensesUpdated 2026-02-12

Can I claim client lunches as a business expense?

Quick Answer

Client entertainment is not tax-deductible for Corporation Tax or VAT purposes. However, the cost comes from pre-tax profits, so there's still some indirect benefit.

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Detailed Explanation

Client entertainment tax rules

Corporation Tax

NOT deductible - Cost is 'disallowable' for tax purposes - Added back to profits when calculating tax - You pay Corporation Tax on the expense

VAT

NOT recoverable - Cannot reclaim VAT on client entertainment - Must account for full cost including VAT

What counts as entertainment? - Business lunches and dinners with clients - Drinks and hospitality - Event tickets - Gifts over £50 to same person per year - Hospitality at sports events

Exceptions that ARE deductible

- Staff entertaining (team lunches, Christmas party up to £150/head) - Subsistence when travelling (your own meals) - Gifts under £50/year per person (with company branding) - Samples of your product

The indirect benefit

While not tax-deductible, client entertaining still: - Uses pre-Corporation Tax money - £100 lunch costs £100, not £100 + 25% CT - Compare to paying from personal income (post all taxes)

Record keeping

Still keep receipts for: - Audit trail - Proof it's genuine business expense - Avoids HMRC challenging as personal expense

Business strategy

Many businesses limit entertainment or use alternatives like co-working spaces, online meetings, or subsidised client events that qualify as marketing.

Source: HMRC Business Entertainment Guidance

Real-World Examples

Pitching a New Client Over Lunch

You take a potential client to a £150 lunch to discuss a significant contract. While you can record this in your accounts, the £150 is *not* deductible against your Corporation Tax bill and the VAT element cannot be reclaimed. If you secured the contract, this cost would be covered by future sales.

Annual Dinner with a Key Supplier

You treat your key supplier to a £200 dinner as a thank you for their reliable service throughout the year. Because this is considered 'entertainment', even though it strengthens your business relationship, neither the cost nor the associated VAT is tax-deductible.

Taking a Business Contact to a Sporting Event

You invite a business contact to a football match. The tickets cost £80. Again, even though this fosters a better business relationship, the £80 is considered client entertainment and is a non-deductible expense for both Corporation Tax and VAT.

Common Mistakes to Avoid

  • Assuming all business-related meals are tax deductible, which is incorrect as client entertainment is specifically disallowed by HMRC.
  • Claiming VAT on client entertainment expenses, leading to potential penalties during a VAT inspection.
  • Forgetting to add back client entertainment expenses to profits when calculating your Corporation Tax liability, resulting in an underpayment of tax.
  • Not differentiating between genuine staff entertainment (which may be allowable in certain circumstances) and client entertainment.

What if the meal is a working lunch with employees only?

If the lunch is solely for your employees and is considered reasonable, it's generally an allowable business expense. Keep records to demonstrate its business purpose and that it was for employees only, not clients.

Are there any exceptions to the client entertainment rule?

There are limited exceptions, such as entertaining overseas customers to the extent that it's reasonable in scale and genuinely aimed at promoting UK trade. Strict documentation is crucial to prove this.

If I pay for my own meal while with a client, is that deductible?

Your own meal would still likely be classified as part of the overall client entertainment and therefore not deductible. HMRC's focus is on the purpose, not just who ate what.

How should I record client entertainment expenses in my accounts?

Record the expense under a separate 'Client Entertainment' category in your profit and loss account. This makes it easier to identify and add back when calculating your taxable profits.

Practical Tips

  • Maintain detailed records of all client entertainment expenses, even though they're not tax-deductible. This is good accounting practice and helps track overall business spending.
  • Consider alternative ways to build client relationships that aren't classified as entertainment, such as providing free product samples (within reasonable limits).
  • Clearly label all client entertainment expenses in your accounting software to avoid accidentally claiming them as deductible when filing your tax return.
  • If you're unsure whether an expense qualifies as client entertainment, err on the side of caution and treat it as non-deductible. Consult a tax advisor if needed.

Related Questions

What expenses can I claim through my company?

You can claim expenses that are 'wholly and exclusively' for business purposes. This includes travel, equipment, professional subscriptions, training, marketing, and business insurance.

Can I claim my phone bill as a business expense?

Yes, but only the business portion. If you use a personal phone for work, you can claim the percentage used for business. A phone contract in the company's name is simpler and fully deductible.

Can I claim working from home expenses?

Yes. Your company can pay you £6/week (£312/year) tax-free for working from home. Alternatively, you can claim a proportion of actual home costs based on business use.

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