When businesses spend money on events, food, or hospitality, one question comes up time and time again:
Is this marketing, or is it business entertaining?
It might seem like a small distinction, but from a tax perspective, it makes a big difference. HMRC treats marketing expenses and entertaining costs very differently, which can directly impact your tax bill and VAT recovery.
In this guide, we explain the difference between entertaining and marketing, with practical examples to help you get it right.
What Counts as Business Entertaining?
In simple terms, business entertaining is about providing hospitality, rather than promoting your business to a wider audience.
HMRC defines entertaining as the provision of things like food, drinks, accommodation, or event tickets to clients, potential customers, or suppliers.
The key rule is straightforward:
Even if there is a clear business purpose, client entertainment is not tax-deductible.
Example: A Client Event with Food and Drinks
Imagine you host a client evening that includes drinks on arrival, catering, and a short presentation on tax or business planning. There may also be an opportunity for networking.
While this may be valuable for building relationships and sharing knowledge, HMRC still views it as entertaining because hospitality is being provided.
The tax treatment is important:
- The cost is not deductible for Corporation Tax or Income Tax
- VAT cannot be reclaimed
This often surprises business owners, particularly when the event feels like a legitimate business activity.
What Counts as Marketing?
Marketing is different because it focuses on promoting your business to a broader audience, rather than hosting or entertaining specific individuals.
Most marketing costs are allowable for tax purposes and, in many cases, VAT can be reclaimed.
Examples of marketing activities include advertising, maintaining a website, running social media campaigns, and producing promotional materials. Attending exhibitions or trade shows can also fall under marketing, provided they are not centred around hospitality.
Networking Events: A Common Grey Area
Networking events often sit somewhere between marketing and entertaining, which can create confusion.
If you attend a structured networking group or business event where the primary purpose is introductions, referrals, and professional connections, the event fee itself is usually allowable.
However, any element relating to food or drink is generally treated as entertaining and is therefore disallowed for tax purposes.
This distinction is subtle but important. HMRC will look closely at what you are actually paying for, rather than how the event is described.
Mixed Events: Staff, Clients and Partners
Things become more complex when events involve a mix of attendees.
For example, if you organise a company quiz night where staff, business partners, and clients attend, the tax treatment depends on who the costs relate to.
Costs relating to employees are usually allowable, and VAT can typically be reclaimed. However, any costs relating to clients or non-employees are treated as entertaining and are not tax deductible, with no VAT recovery.
In situations like this, it is important to split and apportion the costs correctly to reflect the different categories of attendees.
Why This Matters for Your Business
We often see businesses mistakenly treating all event costs as marketing, reclaiming VAT in full, and not separating staff and client costs.
This can lead to:
- Disallowed expenses
- Incorrect VAT claims
- Increased risk during an HMRC enquiry
Getting the classification right from the start helps you stay compliant and avoid unnecessary adjustments later.
Understanding the difference between entertaining and marketing is essential for accurate tax reporting. Entertaining is focused on hospitality and is generally not tax-deductible, while marketing is aimed at promotion and is usually allowable.
Client events that include food and drink will almost always fall into the entertaining category, even if there is a business purpose behind them. Staff events, on the other hand, are typically allowable, but mixed events need careful handling.
If you’re planning a client event, networking activity, or marketing campaign, it’s worth considering the tax treatment before committing to costs.
A small change in how an event is structured can make a significant difference to whether the expense is allowable.
If you’d like advice on how to structure events in a tax-efficient way, get in touch. We’ll help you stay compliant and make the most of your spending.
