HMRC Guidance: Business entertainment (VAT Notice 700/65)

• Generally, businesses cannot recover input VAT incurred on “business entertainment” expenses, which is defined as free entertainment provided to non-employees. This includes hospitality like food, drink, accommodation, and tickets to events.
• An exception exists for entertainment provided to “overseas customers,” where VAT may be recoverable if it’s reasonable in scale and character and for strict business purposes, though a “private benefit” charge may apply.
• VAT incurred on “employee entertainment” (e.g., staff parties, team-building) is generally recoverable as input tax, as it’s considered for business purposes, but this excludes entertainment solely for directors or partners, or where employees host non-employees.

Source gov.uk

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