A business can generally reclaim VAT on meals provided to its own employees, whether as travel subsistence or as staff entertainment, but not on meals provided to clients or other non-employees. HMRC draws the line mainly on who the meal is for and why it is provided. VAT on client hospitality is blocked as business entertainment, while VAT on genuine staff costs is usually recoverable.
This guide explains the difference between subsistence, staff entertainment, and business entertainment, and what evidence supports a claim.
What Counts as Subsistence for VAT Purposes?
Subsistence covers reasonable food and drink costs incurred by an employee travelling for business or working away from their usual workplace. Common qualifying situations include:
- An employee travelling to a client site or another office location
- Overnight business trips, where meals form part of the overall travel cost
- Training or conference attendance away from the normal workplace
VAT on subsistence is recoverable when the business pays or reimburses the actual cost and holds a valid VAT receipt. A flat-rate allowance paid to the employee without a receipt carries no VAT to reclaim.
Can I Reclaim VAT on Staff Entertainment?
Yes, VAT on entertainment provided only for employees is generally recoverable. HMRC treats staff entertainment as a cost of running the business, since it supports morale, retention, and productivity. Common examples include:
- Team meals and staff social events open to employees
- Meals provided to staff working late on a business task
- Food provided during internal training or strategy sessions
The recovery applies when the event is for employees generally. An event limited to directors or partners is treated differently, as explained below.
When Is VAT on Meals Blocked?
VAT is blocked on business entertainment, which means hospitality provided free of charge to anyone who is not an employee. The block covers:
- Client and supplier hospitality, such as a meal to win or keep business
- Staff acting as hosts, where employees attend mainly to entertain clients, since their share follows the client cost
- Directors or partners only, where an event is for the owners of the business rather than staff generally
- Guests of employees, such as partners attending a staff party, whose share must be apportioned out of the claim
Can I Reclaim VAT on a Staff Christmas Party?
Yes, VAT on a staff Christmas party is generally recoverable when the party is open to employees. Where employees bring guests, the business reclaims only the share relating to employees and apportions out the guests’ share. A party restricted to directors or partners does not qualify.
The Income Tax exemption for annual staff events, up to £150 per head, works separately from VAT rules. It decides whether employees face a taxable benefit, which affects payroll and P11D reporting. It has no effect on whether the business can reclaim VAT on the same cost.
Can I Reclaim VAT on Working Lunches?
A working lunch provided only for employees generally qualifies for VAT recovery. Where clients or other non-employees attend, the share relating to them is blocked as business entertainment, and so is the share of any staff attending mainly as hosts.
Keeping a record of who attended and the purpose of the meeting alongside the receipt makes the correct split easy to show if HMRC queries it later.
What Records Do I Need to Support a Claim?
HMRC expects evidence that ties the cost to the right category. Useful records include:
- VAT receipts showing the date, amount, VAT charged, and the supplier’s VAT number
- A note of who attended, separating employees from clients or guests
- The business reason, such as the client visited or the location worked from
- Employee travel records, confirming the individual was genuinely away from their normal base
Businesses that keep this documentation consistently find claims easier to defend during a VAT return review or HMRC enquiry. Our VAT accountants in Slough review subsistence and entertainment costs each quarter, so every claim sits in the right category before the return is filed.
Does It Matter If the Person Is a Director or Self-Employed?
Subsistence rules apply to directors in the same way as other employees, so a director travelling for genuine business purposes can have the VAT on meals reclaimed. Entertainment is different: an event for directors alone is blocked, while a director attending a staff event open to all employees does not stop the recovery.
A VAT-registered sole trader claiming their own subsistence costs while travelling for business applies similar principles through their own VAT return.
Frequently Asked Questions
Is there a daily limit on VAT-reclaimable subsistence? HMRC does not set a fixed daily limit, but costs must remain reasonable for the situation rather than lavish or excessive relative to the business need.
Can I reclaim VAT on meals for a client and staff member together? Generally no. The client’s share is blocked as business entertainment, and HMRC also blocks the share of staff who attend mainly as hosts.
Does the 24-hour rule affect VAT subsistence claims? The 24-hour and 5/10-hour tests relate mainly to Income Tax expense claims. VAT recovery depends on whether the cost is subsistence, staff entertainment, or business entertainment, rather than on a specific time threshold.
Can I reclaim VAT on staff meals under the Flat Rate Scheme? No. Businesses on the VAT Flat Rate Scheme generally cannot reclaim VAT on purchases such as meals, since the flat percentage already allows for input tax.