Staff vs Client Lunch: Your HMRC Tax Claims Explained

There’s no such thing as a free lunch. Well, there could be, but it depends on the details.

Many business owners make the mistake of thinking all staff and client lunches can be recorded as an allowable expense claim with HMRC. Unfortunately, it’s not that simple.

HMRC rules focus on whether your meal expenses serve “wholly and exclusively” business purposes. Limited companies and sole traders have different expense rules, and businesses of all types must understand the HMRC lunch allowance. Staff meals at certain events can qualify for tax relief. Money spent on client or supplier entertainment usually doesn’t count as an allowable expense for income tax. This article will help you understand HMRC’s business entertainment rules for corporation tax and show you the right way to claim your limited company’s food expenses.

Understanding HMRC’s Rules on Business Meals

HMRC’s tax rules for business meals follow basic principles that determine which expenses qualify for relief. You need to understand several vital differences that will affect your tax position.

The ‘wholly and exclusively’ principle

The ‘wholly and exclusively’ principle is the life-blood of HMRC’s approach to business meal expenses. This rule states that expenses must be purely business-related to qualify for tax relief. Your limited company’s food expense claims must show these costs were needed only for business reasons.

Sole traders face stricter rules. Your lunch counts as a personal expense unless you can link it directly to business activities. HMRC knows you need to eat whether you’re working or not, so regular meals don’t qualify for tax relief.

What counts as a business meal?

Your HMRC lunch allowance claims fall into two main categories:

1. Subsistence: Meals you eat while travelling away from your usual workplace or during business overnight stays.
2. Staff-related meals: Food served during business meetings or as part of staff welfare programmes.

Meals at your regular workplace during normal hours don’t count as business expenses. All the same, some exceptions exist when meals are part of workplace facilities that all staff can use.

Subsistence vs entertainment explained

The difference between subsistence and entertainment is significant for lunch expense claims with HMRC:

• Subsistence covers food and drink costs you need while travelling for business or working at temporary locations. These expenses usually reduce your tax bill.
• Entertainment means providing hospitality to clients, suppliers, or other external business contacts. HMRC business entertainment rules for corporation tax usually don’t allow these expenses.

This matters because you can claim your own meal while meeting a client as subsistence, but the client’s portion counts as entertainment and isn’t allowed. It also affects VAT – you can typically claim VAT back on subsistence but not on entertainment expenses.

These basic differences help you claim only what’s allowed and avoid problems during HMRC inspections.

Claiming Staff Lunches: What’s Allowed

Business owners often miss out on tax-saving opportunities that come with staff-related meal expenses. Staff lunches can qualify for tax relief under specific conditions, unlike client entertainment which has strict limitations.

Meals during team meetings

Food costs during genuine business meetings with your staff typically qualify as allowable expenses. These meetings need a clear business purpose that goes beyond just having a meal together. Here’s what you need to claim these expenses:

• Document the business purpose of each meeting
• Keep receipts showing both the amount and location
• Ensure the cost is reasonable and proportionate

These expenses are allowed because businesses use them exclusively for business purposes—not personal enjoyment.

Annual events and the £150 rule

Staff events like Christmas parties or summer picnics come with a special tax break. Your employees can receive up to £150 per year tax-free for annual social functions if you meet these conditions:

• The event must be open to all employees
• The £150 limit covers the total cost including VAT, travel and accommodation
• This is an exemption, not an allowance—go over by even £1 and the entire amount becomes taxable

The rule applies per head rather than per event, so you can plan multiple smaller events that stay under the threshold together.

To understand more about this, you can read another article where we cover all you need to know here.

Trivial benefits under £50

Your staff can receive small treats costing less than £50 that qualify as “trivial benefits” without paying tax or National Insurance. These benefits must meet specific rules:

• Each benefit must not exceed £50
• The benefit cannot be cash or a cash voucher
• It must not be a reward for work performance
• There must be no contractual entitlement

The core team in close companies face an extra annual cap of £300 on trivial benefits.

Office-provided meals and canteens

Staff can enjoy tax-free food and drink in workplace canteens if everyone has access to them. Your business can claim tax relief on costs for free or subsidised meals at your workplace since they aren’t typically taxable benefits.

Simple refreshments like tea, coffee, and biscuits at your workplace usually count as allowable expenses without creating a taxable benefit for employees.

Client Lunches: What You Can and Can’t Claim

HMRC scrutinises client lunches much more strictly than staff meals. A good grasp of these rules helps you avoid surprise tax bills and penalties.

Why client meals are usually disallowed

HMRC doesn’t allow tax deductions for business entertainment, including client meals. The tax authority sees these expenses as ways to build relationships rather than essential business costs. Client entertainment doesn’t meet the ‘wholly and exclusively’ principle because it creates personal benefit or goodwill.

This rule stays firm even when business discussions happen over lunch. The logic behind this is simple – meals with clients serve two purposes: business and relationship building. This dual nature makes them ineligible for tax relief.

The quid pro quo exception

Client meals might qualify for tax relief in rare cases under the ‘quid pro quo’ exception. You need to meet these conditions:

• The meal directly exchanges for specific professional services
• Clear proof shows the client gives something of equal value
• The setup looks more like payment in kind than entertainment

To name just one example, you might provide lunch to a consultant who trains your team for free instead of charging their usual fee. HMRC could see this as an allowable expense.

Effect on Corporation Tax and VAT

Client entertainment stays disallowed for Corporation Tax purposes, even as a legitimate business expense. Your company must add these costs back when calculating taxable profit.

The VAT rules make these meals more expensive because you can’t reclaim input VAT on client entertainment expenses. Your bookkeeping system should clearly track these expenses to handle tax treatment properly.

Examples of disallowed vs allowed scenarios

Disallowed scenarios:

• Lunch with a potential client to discuss a possible contract
• Dinner for existing clients after a business meeting
• Refreshments during client presentations at your office

Allowed scenarios:

• Your meal (not the client’s) during a business trip
• Refreshments for all attendees at a genuine business seminar
• Quid pro quo arrangements where meals replace normal fees

Making a Valid Claim: Documentation and Allowances

Good record-keeping is the foundation of successful lunch expense claims with HMRC. A clear understanding of documentation needs and allowance options will save you time and maximise your legitimate claims.

Flat rate vs actual cost claims

You have two main options to claim subsistence expenses:

• Actual costs: You can claim the exact amount you spend and support it with receipts
• Flat rate allowances: HMRC’s simplified expense rates let you claim without meal receipts

These flat rates apply to business travel:

• £5 for trips lasting 5+ hours
• £10 for trips lasting 10+ hours
• £25 for trips lasting 15+ hours (ongoing at 8pm)
• An extra £10 if travel continues past 8pm

The simplified rates also include £6 weekly if you work regularly from home and £350 monthly per person living at business premises.

What counts as a reasonable cost?

HMRC uses a “reasonableness test” but doesn’t set exact amounts. Here’s what usually works:

• Regular pub meals and café lunches pass the test easily
• Business travel lunches between £15-20 are acceptable
• £100+ fine dining experiences will raise concerns

Your location matters. A £25 lunch in central London might be reasonable, but this could seem too much in a rural area.

Keeping receipts and travel logs

Your records must be kept for at least 3 years and show:

• Each expense’s date and details
• Business meal attendees
• Business purpose
• Your cost contribution

Business travel meals need clear records of departure times, destinations, and business reasons.

At WCL, we recommend Dext as a great solution to make it easy to manage your receipts. If you would like more information, please get in touch.

Avoiding common mistakes

Watch out for these frequent errors:

• Daily lunch claims at your usual workplace
• Alcoholic drinks without clear business reasons
• Mixed personal and business costs
• Meal claims during normal commuting
• Costs beyond reasonable limits
• Poor documentation

Conclusion

Understanding HMRC’s rules for lunch expense claims takes close attention to detail. If followed correctly, these claims can be a great benefit for a business. However, it’s easy to get it wrong as it is a fine line between what is and isn’t acceptable.

As always, if you have questions or would like more information, please get in touch.