Not all business spending means you can reclaim VAT
Just because a director or employee spends money whilst doing their job, it doesn’t mean you can automatically reclaim the VAT; the spending must be for the benefit of the business, not for someone’s personal gain for VAT to be reclaimable.
For example, if an employee stays in a hotel overnight before a client meeting, the VAT on the hotel bill can usually be reclaimed. But, if a director takes their partner out for a fancy meal and puts it on the company card, that’s a personal expense and you cannot reclaim the VAT. To be fair, that probably seems obvious.
Business entertainment – most VAT Is ‘blocked’
In general, you can’t reclaim VAT on anything you spend entertaining clients, whether they’re based in the UK or abroad.
This includes things like:
Meals and drinks with clients
Taking clients to events or shows
Paying for clients’ travel or accommodation
This is what HMRC calls “business entertainment,” and VAT on these costs is blocked.
Staff Entertainment – you CAN reclaim VAT
What about reclaiming VAT when treating your staff – for example:
A team-building meal
A staff party
Rewarding them for good performance
In all the above cases, then you can reclaim the VAT. HMRC sees this as an internal business expense, not entertainment for outsiders.
What about business trips?
When directors and employees travel for business purposes, you can normally reclaim the VAT on:
Their hotel stays
Meals (as long as they’re for the employee’s own subsistence)
Travel costs (train, taxis, etc.)
But when the expense involves a customer, it gets a bit more complicated.
Example
John, your sales manager, travels 150 miles to meet a potential new client. He stays in a hotel the night before the meeting and pays for dinner and breakfast. After the meeting, he takes the client out for lunch.
Here’s what you can reclaim VAT on:
John’s hotel room – yes, as this is part of his business trip and is treated as ‘travel and subsistence’ rather than ‘entertaining’.
John’s evening meal and breakfast – yes, as this too is ‘travel and subsistence’ whilst working.
Lunch with the potential new client – yes for Jason’s meal (as he would be eating at lunchtime anyway as part of his working away from the office; however, VAT is blocked on the cost of the potential client’s meal – which is treated as ‘entertaining’ if paid for by John.
Tip
John should ask the waiter for two separate bills. He can pay both on the company card, but the bill for him can go through as ‘travel and subsistence’ (and VAT can be reclaimed) whilst the bill for his guest can go through as ‘entertaining’, with the VAT blocked. This way, you’re able to reclaim the VAT on John’s meal.
Further examples to help clarify
Staff party
You take your whole team out for a Christmas meal to thank them for their hard work. You can reclaim the VAT.
Client golf day
You take a key client to a golf day and cover their green fees, lunch, and drinks. You cannot reclaim any of the VAT. It’s classed as entertainment.
Overnight stay before a meeting
Your employee chooses to stay in a hotel before a client meeting, even though they could have travelled on the day. This is still fine – VAT is reclaimable, as it’s for the employee’s convenience during work. So, in our example above, John could have stayed overnight prior to his meeting with the potential new client, even if it had been feasible for him to make the 150-mile journey on the day of the meeting.
Key takeaways
You can reclaim VAT on:
Staff entertainment (like team meals or parties)
Employee subsistence costs (hotels, meals, travel)
Your employee’s share of meals during business trips
You can’t reclaim VAT on:
Anything spent entertaining clients (meals, drinks, events)
Any personal expenses
Need help?
These rules can be tricky — especially when trying to decide if something counts as “entertainment” or “subsistence.” If in doubt, speak to us first.