Overseas business trip with the family – is it taxable?

You are making an overseas trip for business and have decided to take your husband and two children, so they can holiday while you are working. The question is, can you put the expense through the company and if so, are there any tax considerations?  Kirsten Hancock looks at the implications.

The answer to the first part of the question is “yes”. Of course, your company can pay for or reimburse the cost of the trip for yourself and your family. But whether it’s tax efficient to do so is a different matter. In this article, we will therefore consider the tax and NI consequences of each travel-related expense that might be incurred on the trip.

Taxi Fares
Composite fare. The tax and NI position for the taxi fares to and from the airport depends on how the fare is worked out. Generally, fares are the same whether there’s one or four passengers. Where this is so and you are one of the passengers, the whole cost can be included as a corporation tax (CT) deductible expense in the company’s profit and loss account without any further tax or NI issues to worry about.

Fare per passenger. The position is different if the taxi firm charges per passenger. If put through the profit and loss account the cost relating to your family is still tax deductible for CT purposes, but there will be income tax and NI charges in respect of the additional fare charged for your family’s journey.

If the company pays the fares direct it is taxable as a benefit in kind or, if you pay the fares and your company reimburses you, it must apply PAYE tax and NI to the reimbursement in the same way as a salary.

The income tax and NI charges are avoided if the travel expenses for your family are recorded as a personal expense, say by debiting it to your director’s loan account (DLA) instead of including it in the firm’s profit and loss account.

Flights
The CT, income tax and NI positions follow the same principles as applied to the taxi fare. So, the cost of your fare can be charged to the company’s profit and loss account without any corresponding income tax charge. Plus, the fares for your husband and children can be debited to your DLA to avoid income tax and NI.

Hotel and living expenses
The tax rules that applied to taxi fares and flights also apply to accommodation and expenses. If they can be specifically attributed to each person, the costs for you are deductible for CT purposes with no other tax or NI issues while the costs for your family can be charged to your DLA to avoid tax and NI. If they are included in the profit and loss account they will be taxable as a benefit or salary.

EXAMPLE.
You and your husband occupy one room and your children have another. The cost of each room is £1,000 for the duration of your stay. It’s the same regardless of the number of occupants. Provided that the hotel room is no different from the hotel room that you would have taken if you had been travelling by yourself, in effect there’s no additional cost for your husband staying with you and so the whole £1,000 is a deductible expense for CT purposes with no other tax consequences. Conversely, the cost of the children’s room must be charged to your DLA to avoid income tax and NI.

If there’s no extra cost for a spouse, family member or other person accompanying you on a business trip, the whole cost is deductible for CT purposes and there are no other tax or NI charges to consider.

It must be a genuine business trip. You cannot claim the cost of flights and accommodation for a holiday through the company as a business trip because the opportunity to work arises on the holiday.

SUMMARY
While any expense can be put through a company and be deductible for corporation tax purposes, doing so will result in income tax and NI charges if they have a private purpose. However, if the private use does not increase the cost of the business trip, no tax or NI liability arises.

For further information relating to this tax scenario or other similar issues please do contact JRW Hogg & Thorburn directly.