Entertainment and Promotional Costs: Tax Guide UK

⏳ 5 min read

The entertainment and promotional costs tax treatment is a key concept for limited companies, sole traders, and landlords. In this blog, we explain how these costs are classified for tax purposes by HMRC and what you can claim as allowable expenses.

Entertainment and Promotional Costs Tax Treatment Explained

Entertainment generally refers to hospitality provided to clients, customers, or contacts. This might include:

Meals and drinks at restaurants – e.g., taking a client for a meal with the intention of gaining new business.
Tickets to events (e.g., concerts, sports matches) – e.g., taking a client to a sport event to build goodwill.
Leisure activities (e.g., golf days).

For tax purposes, entertainment costs are not allowable deductions. HMRC treats these as business entertainment, meaning:

✔️ You can record the expense in your books, but
❌ You cannot deduct it from taxable profits, and
❌ VAT on these costs cannot be reclaimed (for VAT-registered businesses).

Examples:

Meeting a client in a coffee bar to discuss the client’s expansion plans – not allowable.
Giving a bottle of wine to a client as a thank you – not allowable.

Promotional Costs and Tax Deductions

Promotional costs are typically tax-deductible if they are wholly and exclusively for business purposes. Examples include:

Branded merchandise.
Advertising campaigns.
Sponsorships with clear business exposure.
Product launches or demonstrations.

Note: If you host a promotional event where you also entertain clients (e.g., serving food and drinks), only the genuine advertising costs are deductible. Keep records separating the promotional element from entertainment.

Entertainment and Promotional Costs: Tax Treatment for Limited Companies

Entertainment costs: Not tax-deductible, cannot reclaim VAT.
Promotional costs: Allowable if wholly for business. VAT can be reclaimed.
Employee events: Annual staff parties under £150/head may qualify as allowable – e.g., taking employees out for a meal.

For Sole Traders

Entertainment costs: Non-deductible – e.g., taking a client to a sports match to build goodwill.
Promotional costs: Deductible if wholly for business.
Personal vs. business: Personal benefit (e.g., meeting a client in a café for a casual chat) may disallow the cost.

For Landlords

Entertainment costs: Generally not allowable.
Promotional costs: Advertising for properties is deductible. Lavish promotional events or hospitality are not.

Key Takeaways on Entertainment and Promotional Costs Tax Treatment

Keep clear records of all expenses.
Entertainment costs are non-deductible; promotional costs may be allowed.
Landlords should limit claims to essential advertising.

Additional Example

Some businesses operate from public spaces like coffee bars. For example, if your employees work in a coffee bar and you claim drinks as a business expense, HMRC may challenge this as personal rather than business-related. Clear evidence of business purpose is crucial.