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Where Taxpayers and Advisers Meet

Employee extending business trip for holiday

MickyVerdi
Posts:2
Joined:Mon Apr 03, 2023 10:29 am
Employee extending business trip for holiday

Postby MickyVerdi » Mon Apr 03, 2023 10:36 am

Hi I hope someone can help.

An employee has to attend a meeting abroad and the employer is paying for the flights. The employee decides to tack on a week's holiday with the employer's consent.

I understand that means the flights fail the "wholly and exclusively" rule and so the employer cannot offset the cost against earnings to reduce its Corporation Tax. However:

1) Does the employee have to pay any income tax on the cost of the flights as a "benefit in kind" ?
2) Do either the employer or the employee have to pay National Insurance contributions on the value of the flight?

Many thanks in advance.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Employee extending business trip for holiday

Postby Lambs » Mon Apr 03, 2023 10:51 am

M,

Not sure why the extension fails the "wholly and exclusively" test for the employer: based on the information provided, there was a solely work-related objective at the employer level, and that appears unchanged.

Who is paying for the additional cost incurred, as a result of the holiday bolted on? If employer, then likely marginal cost will be a BIK. If the e'ee, then why a BIK at all?

Care recommended if the employee is a decision-making director but if it were originally necessary / appropriate to have the meeting at the holiday destination, and the holiday were genuinely an afterthought, then deductibility / BIK implications should be limited.

Regards,

Lambs

MickyVerdi
Posts:2
Joined:Mon Apr 03, 2023 10:29 am

Re: Employee extending business trip for holiday

Postby MickyVerdi » Mon Apr 03, 2023 3:04 pm

Thanks

In this particular example, a husband and wife are both shareholders and directors of the company with decision-making responsibility. They are required to meet a significant funder of the company annually to discuss business face-to-face. They choose to add on a week's holiday.

As I read it, the maximum fraction of their flights which is deductible for corporation tax purposes is probably 1/8 as their business in the foreign country lasts only one day but they have chosen to stay a further seven days for private leisure.

In this case:

1) Do they have to pay any income tax on the 7/8 or whole cost of the flights as a "benefit in kind" ?
2) Do either they or employer or the company have to pay National Insurance contributions on the value of the flight (either 7/8 or all of it)?

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Employee extending business trip for holiday

Postby Lambs » Tue Apr 04, 2023 2:06 am

M,

This seems to be getting more complex, not less. I am guessing that the employee is effectively asking the employer to extend a business trip as a BIK.

Seems to me that you may be conflating deductibility with BIK. Again, if the overseas visit is necessary to secure ongoing/more business with a particular client, then it seems prima facie to pass the W+E test. I suppose that there is a risk that a statutory disallowance might arise under client entertaining provisions, but it could still be a deductible journey so long as entertaining was not the sole/main purpose. E.g., if the directors have a five-hour business meeting but then take the client for a meal, seems to me the T&S relating to the business meeting should still be allowable as the fundamental purpose of the trip (But does the client need to see both directors, or really only one?)

If the company is bearing the cost of providing the directors with holidays on top as a BIK, then that is allowable to the company if it can be argued that it is part of the director's/directors' remuneration package, and incentivises them to do work to increase business, etc. (Disallowing it does NOT prevent its being a BIK.)

Assuming this is not Salary Sacrifice/Optional Remuneration Arrangements, then I should normally look at the MARGINAL (additional) COST as the starting point for BIK. While the extra nights in the hotel could amount to 7/8ths of total hotel bill, I doubt that the extra cost of the flight would amount to 7/8ths. Doesn't make sense. Again, this is for the BIK, NOT for the CT relief.

If the employer is contracting with the airline / hotel, then this is the company's liability, and I do not see why the employees might have primary NI exposure. I would expect the company to contract if it were motivated as a business expense. Ordinarily, one might worry about Employees' NICs only if the employer were settling the employee's own personal pecuniary liability - the employee had contracted personally, but the company then settled the employee's personal bill.

I trust this goes some way towards addressing your queries.

With regards,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Employee extending business trip for holiday

Postby bd6759 » Tue Apr 04, 2023 9:37 pm

There is no wholly and exclusively test for employees’ travel. The only test here is wherever the travel was for necessary attendance at a place in the performance of the duties of the employment.

As long as the flight to get to the meeting satisfies the necessary test, the flight home will also satisfy the test despite it not immediately following the work purpose.

I presume all accommodation and subsistence expenses were met personally during the extra week.

It would be different for a self employed person: the whole cost (both directions) would fail the w&e test.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Employee extending business trip for holiday

Postby Lambs » Wed Apr 05, 2023 6:04 am

I am not sure I concur with either of B's first and final assertions, although I think I see what (s)he intends, having regard to the foregoing.

As to the assumption of who paid for what, I think the gross permutations have already been covered.

Regards,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Employee extending business trip for holiday

Postby bd6759 » Wed Apr 05, 2023 8:47 am

You don’t agree that there is no w&e test in s337 or s338 ITEPA?

You don’t agree that a w&e test, in circumstances where it does apply, would disallow the whole cost?

darthblingbling
Posts:697
Joined:Wed Aug 02, 2017 9:09 pm

Re: Employee extending business trip for holiday

Postby darthblingbling » Wed Apr 05, 2023 9:56 am

I was thinking more this 'could' be covered by s370 which does have a wholly and exclusively test.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Employee extending business trip for holiday

Postby Lambs » Wed Apr 05, 2023 9:58 am

B,

I disagree with the statement that employee expenses are not subject to CTA 2009 s 54. I am saying that employee expenses ARE subject to CTA 2009 s 54. Just like most company expenses. I realise you will say you were talking about something else. But the original querist was not.

I am saying that the original business purpose behind the expenditure is relevant. As Brightman J may perhaps once have said: "what did our theoretical [self-employed] doctor theoretically pack FIRST and FOREMOST on his theoretical trip to the South of France to render medical care to his theoretical patient: flip-flops, or stethoscope?"

Regards,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Employee extending business trip for holiday

Postby bd6759 » Wed Apr 05, 2023 12:54 pm

Without a doubt. The costs, whether the individual has a tax liability or not, will be allowable in the CT computation.

The hypothetical doctor was attending to a hypothetical patient whilst in France. Pennycuik J, deciding this very issue in Bowden v Russell & Russell, decided the travel was not allowable.


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