Taking clients out for lunch vs team dinner for my contractors — which counts as allowable entertainment?

Hi Hazel, great question — HMRC treats these two very differently, so it's worth getting it right. Taking clients out for lunch is client entertaining, which is specifically not an allowable expense: you can't deduct it against your profits and you can't reclaim the VAT on it, even though it feels like genuine business spend. A team dinner for your contractors sits in a greyer area — as a sole trader you don't technically have "staff" in the HMRC sense, so the staff-entertaining rules don't neatly apply; if real business discussion happens over the meal, keep a note of the business purpose, but don't assume it's automatically deductible. For actual employees, staff entertaining is allowable where it's wholly and exclusively for the business, with the well-known £150 per head annual party exemption covering the cost as a tax-free benefit, and VAT is reclaimable where the spend is a genuine business expense. My practical advice: note the names and business purpose on each receipt as you go, keep client lunches out of your expense claim entirely, and ask your accountant to sense-check the contractor dinners at year-end.