Tax deductible personal expenses

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Payments you receive from your company are usually liable to income tax unless they are to reimburse you for business expenses you’ve paid personally. However, there’s an exception.  What is this and how does it work?

Business expenses

You probably know that the basis rule for work-related expenses is that they are tax deductible where incurred “wholly and exclusively” for the purpose of your job.  For example, where you personally pay for business travel and your company reimburses you, it can claim a tax deduction for this and teh4r’s no income tax charge on you for the amount you receive.  But where your company pays for something that’s for your personal benefit, this will land you with a tax bill.  Unless of course there’s an exemption to cover it.

Overnight stop

Bills met by your company for the cost of hotels and meals when you stay away on business won’t result in a tax bill because the “wholly and exclusively” rule applies.  But where or company pays for additional facilities, for example, pay-per-view movies in your room or use of hotel gym or pools, these are taxable.

Tip.  Where additional services are part and parcel of the room tariff and not separately charged on the bill, there’s no tax to pay.  But even where they are charged separately you can make use of another tax break.

Overnight incidental expenses

Where your company pay for personal expenses that would normally be liable to tax, these are exempt where, on average, they don’t exceed £5 per night while staying away on business in the UK, or £10 per night while outside the UK.  There’s no restriction on what you buy with this.  For example, it can be for a movie, a morning newspaper or even a treat from the mini-bar in your room’ it’s entirely up to you.

Tip.  The exemption applies as an average per night, for example, say you were away on business in the UK for two nights and on the first you bought a couple of chocolate bars to munch while watching a pay-per-0view movie in your room and all this cost £10, as long as you bought no personal items the second night the exemption would cover the whole £10.

Trap 1.  Where your company pays on average £6 per night for personal expenses the whole lot will be taxable, not just the excess over £5.

Trap 2.  Where your company doesn’t pay for personal expenses, you can’t instead claim the £5 per night as a tax deduction from your salary.

Maximising the tax advantage

The good news is that you don’t actually have to incur the expenses in order for your company to pay you the tax-free allowance.  So there are two ways you and your company can ensure you obtain the maximum advantage from it.

Tip 1.  Make it a company policy that where personal expenses exceed the limit, any excess is reimbursed.  The effect will be to bring the payment back within the tax exemption.

Tip 2.  Get your company to pay a £5 or £10 per night allowance for personal costs regardless of whether you spend it.  If you don’t then it’s extra tax-free pay in your pocket!

Any queries please give us a call.


Sue Stephens

Personal Tax Consultant