Companies and their directors
When your company incurs an expense which directly relates to a director or employee, there are two tax questions to answer. 1. is the expense tax deductible for the company? And 2. 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 does not determine the answer to the other.
Company travel etc. costs
As a rule, any travel-related costs incurred by a company which are exclusively for its business are tax deductible. Even if the reason for the expense is to provide a jolly for a director! For example, if your 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.
Is it remuneration?
The question “does the director/employee derive a taxable benefit from it?” is far trickier to answer. A couple of examples will help.
Example: part 1 – Dan 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 the hotel £400 for three nights. He also spent £60 per day on meals, plus £200 for taxis to and from the airport, the hotel and his client.
Because Dan has intentionally mixed business with pleasure, HMRC can reasonably say that he has derived a taxable benefit equal to the cost of two of the nights in the hotel and the meals, for at least two of the days.
Tip – 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 serves two purposes at once the position is different.
Example: part 2 – A single night in the hotel would have cost Dan £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 are therefore 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 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.