Q&A – Is a working holiday tax deductible?

March 2nd 2020

Q. Mr Jones has arranged to add on a couple days to his family holiday so he can visit colleagues to discuss work matters. His accountant has told him that he can’t claim any of the costs relating to the trip. Is this correct?

A. As you probably already know about the general rule for expenses, to be tax deductible they must be incurred ‘wholly and exclusively’ for the business. This condition is modified for directors and employees who incur travelling expenses, to be tax deductible they must be incurred in the performance of their job. However, this rule is not as straightforward as it might seem.

For example, a director often travels from home to visit a customer on the way to the office. One interpretation of the rules suggests that none of the cost of the journey to the office from home is tax deductible because travel between your home and your normal place of work (a commute) counts as a private journey. Alternatively, the travel is two journeys, one from home to the customer and one from the customer to work. The second part meets the condition while the first doesn’t because any journey beginning or ending at home is commuting.

Because both interpretations have flaws HMRC usually (but not always) accepts that a journey incorporating a business element which starts from or ends at your home meets the condition for a tax deduction.

In another example, you travel 200 miles to visit several customers. You stay overnight in a hotel and in the evening you go to the cinema. While the cost of travel from your hotel to the cinema is clearly private, HMRC says this won’t jeopardise the tax deductibility of the main journey from your home or office to visit customers.

In the example above the purpose of the journey is clearly business which happens to offer an opportunity to undertake private activities. What’s more, it’s easy to identify and separate the business from the private element of the trip. This means the cost of travel from home or work to the hotel and the customer is tax deductible, while the cost of travelling to and from the cinema is not. A similar approach can be used to differentiate between deductible and non-deductible expenses if the main purpose of your journey is private but you undertake some business while away.

In response to the original question about Mr Jones. He has booked his family’s summer holiday in southern Spain, he then intends to leave them for a couple of days while he flies to Barcelona to visit some work colleagues to discuss business. The cost of Mr Jones and his family’s travel and accommodation in southern Spain is obviously not related to travelling in the performance of his job, even though it is one leg of his trip to visit work colleagues. None of it is tax deductible. Conversely, the cost of his flight to and accommodation in Barcelona is business, and therefore tax deductible, even if he visits a bar or two in the evening with his colleagues.

If you are combining business with pleasure, keep detailed records which identify the tax deductible and non-deductible cost elements.

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