Travelling on Business

Can HMRC dictate where you can stay while on business?

Travel and subsistence costs that are reimbursed to employees are being reviewed by HMRC. The enquiry states that these expenses are excessive and taxable additions to business excursions.

Business Expenses 

A company can regard business expenses that are reimbursed to employees as exempt from tax or NI as of April the 6th 2016. Although, an expense that isn’t necessary for the employee to do their job is not tax-deductible or exempt from NI.

Two Reasons Means No Tax Deduction

When a business expense has two separate purposes, it cannot be considered necessary for the purpose of the job and is therefore liable to NI and is taxable. Also, applying PAYE tax and NI to reimbursed expenses where it is necessary is now with the responsibility of the employer as of April the 6th 2016.

Trap

HMRC has the right to treat the business expense as a personal reward to the employee or director in cases where accommodation, subsistences and travel is more luxurious than it needs to be. The view is that this is a secondary purpose and is therefore necessary for the purpose of the job and is taxable as a perk. 

Trouble for the company?

Employee or director perks count as part of their salary package; which is a tax-deductible cost for the company. The only tax issue the company will come across is deciding if they should deduct NI or PAYE when an expense is reimbursed or declare it as a perk on FormP11D at the end of the tax year.

Personal Benefit?

If and when an employee or director gains a personal advantage through their job, it’s not automatically considered a taxable perk.In the case of Watkis v Ashford Sparkes & Harward 1985, the cost of those attending business meetings in the hotel included the cost of food and drink as part of the hotel package. The cost of the accommodation (a business expense) couldn’t be billed separately form the meals or drinks because the hotel lay them out as a single charge, therefore, there is no taxable perk.

Trap

If the company pays extra for additional parks i.e. a round of golf on the hotel’s course, this is then regarded as a taxable perk. The cost must not be itemised on the bill and must be part of the usual extras offered for it to escape this tax charge. 

Tip

The cost of any extras offered that are included in the accommodation charge i.e. food and drink or gym memberships, won’t be liable to NI or taxable, as long as the main purpose of the stay is for business. HMRC cannot dictate the quality of the hotel that is stayed in but a reasonable approach to this is recommended. Therefore, if your treatment of reimbursement expenses are challenged by an inspector, you should point them in the direction of HMRC’s employment income manual

HMRC can’t treat extras such as gym memberships or meals that are included in the price of the hotel as a perk or charge employees for a perk, just because your company has decided to put them up in high quality accommodation. 

To avoid attention from HMRC, you should attempt to keep costs at a reasonable level.

For more information call us on 0141 345 2335.

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