WHY CLIENT ENTERTAINING NEVER GETS YOU A TAX BREAK

Taking a client for lunch, sending tickets to a private view, or covering the bar tab after a pitch feels like the cost of doing business — especially in agency and studio work, where relationships often are the business. But HMRC has never allowed a tax deduction for entertaining clients, and that hasn't changed for 2026/27.

The numbers:

- Client entertaining is disallowed for Corporation Tax (companies) and Income Tax (sole traders and partnerships) under s.1298 Corporation Tax Act 2009 / s.45 Income Tax (Trading and Other Income) Act 2005 — even where the spend is wholly and genuinely for the business.

- VAT on client entertaining is blocked too, in almost all cases, under VAT Notice 700/65.

- The one narrow exception: reasonable, basic hospitality for genuine overseas customers can sometimes let you reclaim the VAT — keep a record of who attended and why.

- Business gifts to clients are only deductible if they cost under £50 per person per year, carry a clear advert for your business, and aren't food, drink, tobacco or vouchers.

- A genuinely public event — a launch open to anyone, not just invited contacts — can sometimes count as advertising instead of entertainment.

None of this means stop entertaining clients. It's usually still worth paying through the company: because the cost isn't deductible either way, routing it through the business avoids the extra personal tax hit of paying from your own pocket first. Just don't expect it to reduce your Corporation Tax bill, and code it separately in your bookkeeping from staff entertaining and subsistence, which are treated very differently.

If you're not sure how a particular cost should be coded, or want your expense categories set up properly from the start, get in touch with the Flow team: https://calendly.com/flowaccandtax/discoverycall