Entertainment is defined as any one of the following:
provision of food and drink
provision of accommodation (such as in hotels)
provision of theatre and concert tickets
entry to sporting events and facilities
entry to clubs and nightclubs
use of capital assets such as yachts and aircraft for the purpose of entertaining.
Input VAT on staff expenses are generally fully recoverable. However business entertainment (except on foreign customers ) is not recoverable.
Also note input tax is deductible if the entertainment is ‘reasonable in all the circumstances’, while output tax is chargeable if the costs have been put to purposes other than those of the business within SI 1993/1507.