What are the rules about tax on personal use of business accommodation?
You’re working on a long term contract that is away from home.
You’ve rented am apartment for six months to keeps costs down.
Will you be taxed if you use the flat at the weekends or your family visits?
The tax rules on personal use of business accommodation are worth exploring.
When your company incurs an expense which directly relates to a director or employee, there are two tax questions to answer: is the expense tax deductible for the company? And does the director/employee derive a taxable benefit from it?
These questions are often muddled together especially when the expense relates to business travel, accommodation and subsistence, but they must always be considered separately as the answer to one doesn’t determine the answer to the other.
As a rule, any travel-related costs incurred by a company which are wholly and exclusively for its business are tax deductible even if the reason for the expense to provide a jolly for a director.
For example, if you company pays for you to have a weekend away in a luxury resort, the cost is tax deductible.
The trip is a form of remunerating you with a perk, and the cost of a director’s remuneration is tax deductible for your company. Your company can therefore deduct the cost of renting an apartment which is sometimes unoccupied.
Does tax on personal use of business accommodation count as remuneration?
The question “does the director/employee derive a taxable benefit from it?” is far trickier to answer. Here are some examples:
- Dave visits a French client in May 2019. He extends his trip by two days to sightsee in Bordeaux. The flights cost his company £320 and £400 for the hotel for three nights. He spent £60 per day on meals and £200 for taxis to and from the airport and the hotel and his client.
Because Dave has intentionally mixed business with pleasure HMRC can reasonably say that he has derived a taxable benefit equal to the cost of two nights in the hotel and the meals for at least two days.
Where an expense relates to distinct and separate elements of business use and personal benefit for a director/employee, HMRC will apportion the cost between each business in theory, even if it’s not possible to be precise. However, where an expense services two purposes at once the position is different.
- A single night in the hotel would have cost Dave £150, but a deal meant he was able to stay the three nights for £400. HMRC will accept one third of the cost, £133, as not creating a taxable benefit. Conversely, the cost of the flights can’t be apportioned because they are for business and personal benefit simultaneously and therefor wholly a taxable benefit.
When the accommodation is vacant it has neither a business nor a non-business function and HMRC accepts that there’s no resulting taxable benefit if the motive for renting it was business.
This applies even if it’s used outside of work days e.g. at weekends, or if family come to visit, provided the nature and size of the accommodation wasn’t chosen with private use in mind.