What are the rules for business gifts, entertainment, and networking expenses for small businesses?

Understanding what you can and can’t claim for business gifts and entertainment expenses can save your small business money whilst keeping you on the right side of HMRC. This month, a client in Dartford asked me whether she’ll be able to claim for the Christmas hampers she plans to buy her best customers. The answer wasn’t as straightforward as she hoped, which is why these rules need proper explanation.

Business gifts: what you can and can’t claim

Business gifts follow specific rules that can trip up even experienced business owners. The key is understanding what HMRC considers a legitimate business expense versus personal entertaining.

Allowable business gifts

You can claim tax relief on business gifts if they meet specific criteria set out in HMRC’s Business Income Manual:

• The gift costs £50 or less per person per year – this is the crucial limit that many business owners forget
• It’s not food, drink, tobacco or vouchers exchangeable for these items
• It carries a conspicuous advertisement for your business – think branded items with your company name or logo
• The recipient isn’t an employee of your business

For example, if you give branded USB sticks worth £25 to potential customers at a trade show, that’s an allowable business gift. However, a £60 bottle of wine for your best client wouldn’t qualify, even if it had your company label on it.

Non-allowable business gifts

Gifts that don’t qualify for tax relief include:

• Any gift over £50 per person per year
• Food and drink items (including alcohol)
• Cash or cash vouchers
• Gifts to your own employees (these are benefits in kind)
• Multiple gifts to the same person that exceed £50 in total during the tax year

One of our construction clients learned this lesson when he tried to claim for expensive whisky bottles he’d given to architects who referred work to him. Despite the business connection, alcohol gifts simply aren’t allowable.

Business entertainment expenses: tread carefully

Business entertainment rules are particularly strict, and this is where many small businesses make costly mistakes. According to HMRC guidance on business entertainment, business entertainment expenses are generally not allowable for tax purposes, but there are some important exceptions.

What counts as business entertainment?

According to HMRC’s definition, business entertainment includes:

• Taking clients out for meals or drinks
• Entertaining at sporting or cultural events
• Corporate hospitality at conferences
• Any form of hospitality provided to clients, customers, or suppliers

The harsh reality is that most business entertainment expenses cannot be claimed against your profits for tax purposes, regardless of how essential they feel for maintaining client relationships.

Exceptions to the entertainment rules

There are limited circumstances where entertainment expenses may be allowable under HMRC guidelines:

• Staff entertaining – entertaining your own employees (like Christmas parties or team building) can be allowable, subject to certain limits
• Overseas customers – in very limited circumstances, entertaining overseas customers may be allowable
• Entertaining for business publicity – where the primary purpose is advertising rather than hospitality

Business meals and subsistence

There’s an important distinction between entertainment and legitimate business meals. According to HMRC guidance on travel and subsistence, if you’re travelling for business and need to buy meals away from your normal place of work, these subsistence costs are generally allowable. Similarly, if you’re meeting a potential supplier to discuss terms, the meal might be considered a business meeting rather than entertainment.

Networking expenses: what qualifies?

Professional networking can be crucial for small business growth, but the tax treatment of networking expenses depends on their nature and purpose.

Allowable networking costs

Legitimate networking expenses that you can claim according to HMRC’s allowable business expenses guidance include:

• Membership fees for professional associations and trade bodies
• Attendance fees for business conferences and seminars
• Travel costs to networking events
• Accommodation when attending multi-day business events

A local solicitor in Canterbury regularly attends legal conferences across the UK. She can claim the conference fees, travel, and accommodation because these events directly support her professional development and business growth.

Non-allowable networking costs

Be cautious about claiming:

• Meals and drinks at networking events (these often fall under entertainment rules)
• Social club memberships unless they have clear business purposes
• Personal networking activities that don’t have obvious business benefits

Record keeping for gifts and entertainment

Proper record keeping is essential when claiming any expenses related to business gifts, entertainment, or networking. HMRC can challenge claims that lack adequate documentation.

Essential records to maintain

Keep detailed records including:

• Receipts and invoices for all expenditure
• Business purpose – why the expense was necessary
• Who was involved – names of clients, customers, or suppliers
• Date and location of any entertainment or networking event
• Business outcomes – any contracts or relationships that resulted

For business gifts specifically, maintain a gift register showing the recipient, date, cost, and business purpose for each gift throughout the tax year. If you’re working from home and entertaining clients there, you might also want to read our guide on working from home expenses to understand what additional costs you can claim.

VAT considerations for business gifts and entertainment

If your business is VAT-registered, there are additional rules to consider outlined in HMRC’s VAT guidance:

VAT on business gifts

• You can usually reclaim VAT on business gifts under £50
• Gifts over £50 are treated as supplies, and you may need to account for output VAT
• Gifts to employees are always treated as taxable supplies

VAT on entertainment

• Generally, you cannot reclaim VAT on business entertainment expenses as per VAT Notice 700/65
• Staff entertainment may be an exception in some circumstances
• Always check the specific VAT rules for your situation

Getting professional advice on business expenses

The rules around business gifts, entertainment, and networking expenses are complex and change regularly. What’s allowable for one business might not be for another, depending on your industry, business structure, and specific circumstances.

Many small businesses either miss legitimate claims or incorrectly claim non-allowable expenses. Both scenarios cost money – either through overpaid tax or penalties from HMRC. For more insights on maximising your business expenses and tax efficiency, take a look at our recent blog on 5 questions every small business owner should ask their accountant.

Of course, there are all sorts of other allowable deductions beyond gifts and entertainment, so grab a copy of our handy tax deductible expenses guide to make sure you are claiming everything you’re entitled to. You might also find our blog on capital allowances helpful if you’re making larger business investments.

At Adams Accountancy, we help small businesses across Kent navigate these complex expense rules. Our friendly, approachable team can review your business expenses to ensure you’re claiming everything you’re entitled to whilst staying fully compliant with HMRC regulations.

Whether you’re a sole trader wondering about client lunches or a limited company director planning your annual client gifts, professional advice can save you money and prevent costly mistakes.

Contact Adams Accountancy today for a free, no-obligation chat about your business expenses. Remember, no question is too simple when it comes to understanding your tax obligations.

Frequently asked questions about business gifts and entertainment

Can I claim for taking a potential client out for lunch?

Generally, no. Business entertainment expenses, including client meals, are not allowable for tax purposes. However, if the meal is incidental to a business meeting (such as discussing a specific contract), there may be some scope for claiming it as a business expense rather than entertainment.

What happens if I accidentally claim non-allowable entertainment expenses?

If HMRC discovers incorrectly claimed entertainment expenses during an investigation, you may face penalties and interest charges in addition to repaying any tax relief claimed. It’s better to be conservative and seek professional advice if you’re unsure about any claims.

Can I claim for staff Christmas parties?

Yes, staff entertainment is generally allowable, subject to certain limits. According to HMRC’s guidance on trivial benefits, you can provide up to £150 per employee per year for staff entertainment without creating a taxable benefit. Anything above this threshold becomes a benefit in kind for employees.

Are membership fees for business networking groups allowable?

Professional association memberships and trade body fees are typically allowable business expenses under HMRC’s professional fees guidance. However, social club memberships are generally not allowable unless they have a clear and demonstrable business purpose.

Can I claim for promotional items given away at trade shows?

Yes, promotional items distributed for advertising purposes are generally allowable business expenses. These are different from business gifts as they’re primarily for marketing rather than maintaining specific business relationships.

About the author

Michelle Adams is a qualified accountant and founder of Adams Accountancy, a friendly accountancy practice based in Dartford, Kent. With over 15 years of experience helping small and medium businesses across the UK, Michelle specialises in making complex tax rules simple to understand.

Adams Accountancy provides comprehensive accounting services including tax returns, bookkeeping, and business advisory services to entrepreneurs and small business owners throughout Kent and beyond. The all-female team prides itself on creating a welcoming environment where no question is considered silly.

For expert advice on business expenses, tax planning, or any aspect of small business accounting, contact Adams Accountancy for a free consultation.