Entertainment rulings include: If your party is for employees only, then input tax on the costs of the party can be recovered, subject to the normal partial exemption rules, even if it is more expensive than normal. If the directors attend the party with the other staff then the input tax on the costs is still recoverable. If the directors are the shareholders in the company and have a separate party for themselves then VAT on that would not be recoverable as there would be no business purpose. HMRC’s rationale for this is that the owners of the business receive the profits of the business and don’t need the reward or motivation of a party. If guests who are not employees attend the party then the input tax will need to be apportioned between employees and non-employees, as input tax recovery for entertaining non-employees is blocked. When giving and receiving gifts to and from your clients/customers, you will need to know limitations and how gifts can become taxable: Input tax is claimable on gifts whether they are for employees or clients. There is no need to account for output tax on the cost of the goods given as gifts, as long as the total VAT exclusive cost of business gifts to the same person in any 12-month period does not exceed £50. If the gifts are going to be more lavish than normal this year, then the client will first need to check that none will exceed the £50 limit. They also need to take care if, for example, new customers received a gift of goods at the time of signing up to their contract which when combined with the Christmas gift bring the cost to more than £50. If the total value of gifts to any one person within the 12 months period does exceed £50 then your client should account for output tax on the cost value of all the gifts given to that person.