This crops up time and time again and so we thought we’d write up a little article to let you know where you stand with the taxman and how it works.

The basic rule for work-related expenses is that they are tax deductible where they are incurred wholly and exclusively for the purpose of your job.

This means that if you personally pay for something that is related to (for example) business travel and then the company reimburses you, the company can claim a tax deduction and there is no income tax charge on you.

However if the company pays you for a something of personal benefit to you, then you will be taxed on it. (Unless you have an exemption.)

Overnight accommodation

Let’s take overnight accommodation and related expenses as an example. The bill for stopping in a hotel and the meals when you stay away on business won’t result in a tax bill (the wholly and exclusively rule). However if the company pays for extras deemed for your personal benefit, for example use of the hotel gym or a pay-per-view movie then these are taxable.
If the extras are included in the room bill and not itemised separately then you won’t be taxed.

But what if they are shown separately?

Your company can take advantage of a little tax break where these personal expenses are exempt where on average they don’t exceed £5 per night (or £10 if you’re travelling outside the UK). It’s based on an average, so if you spend £10 on the first night, then you’re still okay provided you don’t spend anything on the second night etc.

A word of warning to employers though. If they opt to pay more than the exempt amount i.e. £7 per night, the whole lot becomes taxable and not just the excess over the £5.

Making best use of the rules

1. You don’t actually need to incur the expenses in order to be paid by the company, therefore the company could make the payments and you get an extra £5 tax free in your pocket.
2. Make it a company policy that where any personal expenses exceed the limit, then the excess is reimbursed to the company.

If you find the above interesting and would like some further assistance, please get in touch.

Courtley West