If you run a limited company and have to occasionally work away from home on business, the cost of paying for hotels can prove to be very expensive. So if you’re think of claiming for overnight business trips and you’re staying with friends and family in the area where you’re working, what’s the tax position?
For example, you live in London (which is where your company is based) and are working at a client’s premises in Bristol on Monday. You then have a business meeting in Manchester on the Thursday.
You’re going to stay with old university friends on these days and you want to show your gratitude by either taking them out for a meal or paying them in cash.
As HMRC do not consider entertaining to be a tax deductible expense is there a way you can claim a tax deduction for any payment you make to them without your friends ending up with a tax liability?
Overnight business trips – your tax position
You could include the idea of staying with your family or friends within your company’s travel policy. This way it becomes a function of the business, rather than your personal choice. This is important when claiming any business expenditure as a tax deduction.
This could simply be a memo permitting the payment of a reasonable allowance to any director or employee that involves a necessary overnight stay with a friend or relative whilst on business.
How much can you pay for overnight business trips?
You can use HMRC’s benchmark rates for subsistence (refer to our previous blog here).
As an overview, HMRC consider a payment of up to £25 per night for accommodation costs to be reasonable. However, this is only guideline and it would depend where in the UK you are staying. Other than a park bench, we’re not sure where you would be able to stay in the UK at a cost of £25 per night!
You can get a good idea of the typical cost of accomodation in cities across the UK here.
Overnight business trips – your friend’s tax position
If this arrangement with your friend (or family member) has been formalised, they could actually charge you rent for occupying a bedroom. This could be greater than the princely sum of £25 suggested by HMRC - though obviously less than you would pay for a hotel.
The ‘rent’ paid to your friend could be paid to them tax-free under the rent-a-room scheme (see our blog here) provided the combined payments did not amount to over £7,500 in any tax year.
Be aware that the rent for occupying the room should in strictness be included on your friend’s tax return (even though no tax liability arises).
Additionally, if meals or other services (e.g. laundry), are provided, then the income would be treated as a trade and therefore included on the trading section of your friend’s tax return!
Our eBooks cover this and many other topics. Check them out here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Thanks for reading our blog post. Please now read our disclaimer here.