Entertainment expenses for sole traders: what you can and can’t claim

Client lunches. Coffee after a meeting. A team meal at the end of a project. Are any of these costs tax-deductible?

For sole traders, the tax treatment of “entertainment” has famously strict rules, but there are a few important exceptions.

This guide explains what HMRC classifies as entertainment, when the expenditure is disallowable, when staff costs can be claimed, how VAT applies, and the records you need to keep safe.

What’s in this guide?

Expenses are treated differently if you run a company; read our limited company expenses guide and the annual staff event exemption.

What counts as entertainment?

The term ‘entertainment’ means providing hospitality or a social experience.

Typical examples include food and drink with a client or customer, tickets for a show or match, a hospitality box, or picking up the bar tab after a meeting.

HMRC examines who benefits from the expense. Costs for non-employees, such as clients, prospects and suppliers, are treated differently from costs for your own employees. That distinction decides what you can claim.

Clients and suppliers: generally not allowable

Money spent entertaining clients, potential clients, or suppliers is typically not an allowable expense for income tax purposes.

Record it in your books so you have a complete picture, then exclude it from your allowable expenses when you file.

This includes coffees, lunches, dinners, drinks, event tickets, and hospitality, even if business is discussed and a contract is subsequently signed.

Entertaining employees

Spending on employees for morale or welfare is usually allowable as a business expense. Think of a modest team meal or an annual staff event.

• If you have no employees, costs for yourself do not count as staff entertaining and cannot be claimed.
• If you do have employees, check the benefit rules. Some events are exempt for employees if they meet set conditions, for example an annual event that is open to all staff and within the per-head limit. If an event does not meet the exemption, the business cost can still be allowable, but a benefit may need to be reported for the employee.

Gifts instead of hospitality

Gifts to customers or contacts are usually treated in the same way as entertainment and are not allowable.

However, there are narrow exceptions:

• The gift clearly advertises your business
• It is not food, drink, tobacco or a voucher
• Total cost to the same person stays within a modest annual limit

Samples of your own product given widely for marketing are generally fine.

Subsistence vs entertainment

Spending on your own meals and accommodation while travelling for work is subsistence, not entertainment.

Reasonable subsistence is usually allowable if the trip meets the business travel rules.

Buying food or drink for a client or prospect is entertainment and not allowable.

See our guide to meals, subsistence and hotels.

VAT on entertainment

• Client entertainment: Input VAT cannot usually be reclaimed.
• Employee entertaining: input VAT on genuine staff entertaining is usually reclaimable, provided the event is for business purposes and not just for proprietors or partners.

If you are VAT-registered, keep valid VAT invoices for any staff events where you plan to reclaim VAT.

For general rules, see the VAT guide (Notice 700).

Evidence you should keep

• Itemised receipts showing supplier, date, description and amount
• Who attended and their link to the business
• Business purpose, for example, “annual staff meal” or “project completion team lunch”
• For mixed events, a simple split of staff vs non-staff costs

Quick examples

Entertainment expenses – FAQ

Can I ever claim for taking a client to lunch?
No. It is entertainment of a non-employee, so it is disallowable for income tax, and VAT cannot be reclaimed.

I am a sole trader with no employees. Can I claim a Christmas meal for myself?
No. Staff entertaining rules apply to employees. A sole trader is not their own employee.

What about a small team event for my employees?
This is usually allowable. If it qualifies as an annual staff event within the normal per-head limit and is open to all employees, there is no taxable benefit for the staff. If it falls outside those conditions, the cost can still be allowable, but you may need to report a benefit for the employee.

Is buying coffee for a contractor entertainment?
Yes. Unless they are your employee, it is entertainment of a non-employee and is not allowable.

Can I treat branded gifts as a form of marketing?
Only if they are genuine advertising items, not food or drink, and the spend per person is modest. Otherwise, they are treated as entertainment and disallowed.

How do I show entertainment on my Self Assessment?
Record the spend in your bookkeeping for completeness, then exclude disallowable entertainment from the figure you claim as allowable expenses on the return.

Related guides

• Meals, subsistence and hotels
• VAT guide for sole traders
• Personal expense claims and your tax return
• Self Assessment tax return
• Annual event rules for limited companies
• Limited company expenses overview