VAT cannot be recovered on business entertainment expenditure. This includes the gratuitous provision to customers or clients of hotel accommodation, food and drink or tickets to events.

If a director or employee entertains a customer or client whilst away from the workplace location, the VAT on that part of the entertainment expenditure which relates to the director's or employee's own meal cost may be recoverable as subsistence rather than business entertainment. Subsistence expenditure can also include, for example, the cost of staying in a hotel when attending a client meeting. Input VAT under such circumstances would be deductible. The input tax on the subsistence of contract workers who are not employed by the company cannot be reclaimed.

Conversely, where a business organises an event which is also attended by directors and employees acting as hosts, the whole of the VAT on the cost is irrecoverable. None of the cost may be attributed to staff subsistence.

Staff entertaining such as staff parties, team building exercises, staff outings and similar events, qualifies for input VAT recovery. This can include the entertainment costs relating to directors, partners or sole proprietors of a business where they attend staff parties together with other employees but excludes entertainment expenditure where the event is organised solely for the business proprietors.

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