As a general rule, you’re allowed to claim a tax relief on travel for business. If you’re a director or employee and your employer pays for, or reimburses you the cost of business travel, the payment is exempt from tax and NI. But is there a limit to how much you can spend to still qualify for tax and NI- free treatment?
HMRC has long held the view that it’s up to you (or your employer) to decide the mode and quality of the transport. So choosing first class rather than standard travel, even though it might be exorbitantly priced, won’t usually cause you to lose the tax relief on travel. The only caveat to that is where there’s a reason other than a business one for the more expensive travel.
Tax relief on travel: allowable expenditure
The chairman of a multinational firm hired a helicopter to take him from London to Paris for a meeting, then back to the UK for another. He could have taken a business class ticket on a plane at a fraction of the cost. HMRC challenged, but then accepted the claim for tax relief on travel because the motive for using the helicopter was wholly a business one i.e. so the chairman could attend both meetings which he could not if had relied on scheduled flights.
Tax relief on travel: non-allowable expenditure
Four employees are required to attend a conference. They would normally make their own way there and claim the cost back from their employer. However, one of them discovers that they can hire a stretch limo with bar and it would cost their employer less than if they make separate travel arrangements. Despite this the reimbursement by their employer would be tax or NE exempt. The employees would have a hard time convincing HMRC or a Tribunal that they only motive for using the limo was a business one.
As with all expenses, they are only tax deductible if they are “wholly and exclusively”, or for the employees “wholly, exclusively and necessarily” for work purposes.
The “necessarily” condition must be considered where a director or employee claims a tax deduction for the upgrade of a journey and their firm only meets the cost of standard travel. The extra expense is sometimes assumed non-allowable because it wasn’t necessary for the employee to incur it because the employer was already paying for the travel. However, it’s not correct where the motive for incurring the extra cost is wholly and exclusively for work. The extra expense is necessarily so the employee can do their job and not for any other reason.
You can claim a tax deduction for upgrading your travel arrangements as long as the purpose for doing so is business.
Need any advice about tax relief when travelling on business? Get in touch with one of our helpful advisors.