How to legitimately claim holiday expenses through your business

The summer holiday season is one of the most popular times of year to travel abroad. Business owners (whether you’re a sole trader or a limited company) can take advantage by legitimately claiming part of your holiday costs as a business expense, thereby reducing your tax bill.

One of the first accounting rules for any business is to keep business expenses and personal expenses separate, and this is no different when it comes to claiming for holiday expenses. HMRC stipulates that only expenses which are “wholly and exclusively” for the purpose of the business can be claimed against your profits. However, as long as there are genuine and substantial business incentives behind the reason for your trip and expenses incurred, it can be possible to make a claim for these.

We explain the HMRC travel expenses guidelines and breakdown the rules when it comes to different types of business expenses you may incur for a holiday.

How much can I claim for business travel mileage?

Before discussing business expenses when going abroad, let’s first consider what expenses you can claim for when travelling around the UK for work. Incurring business mileage is not uncommon for most types of businesses whether it’s to meet clients or suppliers, get to different work locations, or to make deliveries. When using your own personal vehicle for making business trips, HMRC allows you to claim a flat rate for mileage which is:

• 45p per mile up to 10,000 miles annually
• 25p for any miles once you have exceeded 10,000 miles
• 24p per mile if you use a motorbike for business travel
• 20p per mile if you use a bicycle for business travel
• Furthermore, you’re entitled to claim 5p per mile in addition to the above for every passenger you take with you for business purposes

One very important rule when it comes to claiming for business mileage is that you cannot make a claim for your day-to-day commute as this is seen as personal travel. Any business travel that also has a personal element should be accurately accounted for. For example, you run a mobile hair dressing business so visit different locations every day – this would not be seen as a normal commute, and you would be allowed to claim for business miles. However, if on the way to visiting your clients you also drop your children off at school every morning, then this personal element of travel needs to be kept separate and you would not be able to claim for this.

If you were travelling somewhere in the UK for a business conference or even to the airport for an international business trip, then all or part of this travel cost could be claimed against your taxable profits. We will go into the rules and details of this more in the below sections.

Bear in mind that if you run your business as a limited company and the vehicle has been purchased through the company as well, then you will not be able to claim business mileage in this way. Instead, you will need to follow the tax rules for a company car.

Can I claim the cost of flights as a business expense?

The cost of flights for a holiday is likely to be one of your biggest expenses, so it’s good to know that in certain circumstances, you’re able to claim the cost of it as a business expense. To be able to claim the cost of flights as a business expense, you must be booking for a genuine business trip. You will be unable to claim the cost of flights booked for a holiday and then simply claim it was a business trip because the opportunity to work arises. 

Can I claim the costs for luggage as a business expense?

Many budget airlines now charge extra fees for customers to be able to bring luggage that is checked into the hold. If bringing luggage on your business trip is a genuine necessity, then HMRC will allow this as a business expense. However, if the cost of luggage is for personal reasons, such as paying for golf clubs or skis that you plan to use in your own time for entertainment, then this should be paid for personally as opposed to claimed for as a business expense.

Can I claim the cost of a hotel as a business expense?

Where overnight stays are required on a business trip the cost of the hotel can be an allowable business expense so long as it is reasonable. Unfortunately, HMRC do not define what is reasonable and are likely to determine this on a case-by-case basis.

Firstly, it may not always be clear when a hotel stay is necessary, especially if you are travelling within the UK for work. However, one rule you can turn to for guidance is The Working Time Regulations (WTR) 1998. It’s aimed at employers to protect employees but can still be used as a benchmark for what is reasonable. It states that employees must be allowed to have 11 hours rest between finishing work and starting work. So, for example, if you needed to travel 3 hours to get to your work location to work an 8-hour day and would need a further 3 hours to travel back home, this would only leave 10 hours rest for a whole 24-hour period. In this case, it would be reasonable for you to book accommodation.

On the other hand, an international business trip may lead you to automatically conclude that a hotel stay would be reasonable, but this is not always the case. For example, if you needed to travel to Paris by Eurostar for a two-hour meeting and your total travel time including return is 6 hours, then in this case it may be unreasonable to book overnight accommodation. Generally, duration of business travel and work time is a better indication of when it may be reasonable to expense a hotel stay than distance is.

Can I claim entertainment costs as a business expense?

Generally speaking, HMRC do allow businesses to spend up to £150 per employee per year on staff entertainment costs which is tax-deductible. However, if you’re a sole trader or a sole director of a limited company then you’ll be unable to make use of this as it is seen as purely for personal benefit. Nevertheless, if you’re on a work trip, that does not mean you’re excluded from enjoying your own personal time for entertainment. You’re free to go sightseeing or use the hotel gym and spa in your free time between meetings or after work in the evenings. If there are any costs associated with entertainment such taking a boat trip or going to the cinema, then you should not claim these as a business expense. 

Can I claim cost of meals and refreshments as a business expense?

You can only claim for the cost of food and drink when you are required to work somewhere that is not your usual place of work. What is usual or normal can be determined by both frequency and regularity of a normal work pattern. For example, if you work at the same office 5 days a week, this would be both frequent and regular so your lunch time meal cannot be claimed as a business expense. Even if you had to work in a different office twice a month, the meal at the alternative office location is also not an allowable business expense because it makes up part of your regular work pattern. You may be able to claim business miles for travelling to the other office, but you would not be able to claim for the cost of meals or refreshments (also referred to as subsistence costs).

Subsistence is an acceptable business expenditure when you are required to work at an irregular location. An example of this could be when you need to go on a two-day conference. In this instance, the cost of meals and refreshments is treated as an allowable business expense because the cost solely arises due to the necessity of performing your job. You should still ensure the cost of your meal is reasonable. Fine dining is likely to be considered a personal benefit. If you pay for this through your limited company then it will be considered a benefit-in-kind where you will have to pay tax and national insurance. If you are a sole trader, costs of an extravagant meal (or at the very least a proportion of the cost) will need to be covered by you personally.

Another instance where meals and refreshments may be tax-deductible as a business expense is where provision of subsistence is included in a service contract. For example, perhaps your business involves organising training sessions. As part of your training day, your clients may expect lunch and coffees as part of your service agreement. You would also be able to enjoy these refreshments (without having to pay a proportion of the costs for your own personal benefit) so long as you were having the same meals as what you were offering to your clients.

Can I extend a business trip into a holiday?

One of the most effective ways to pay for part of a holiday through your business is to extend a business trip. There are no HMRC travel expenses rules which disallow this. You must of course be planning to go on a business trip first, as explained above, and any costs incurred after completing your work must be paid for privately as personal expenses. So, if your work requires you to be in sunny Spain for 5 days and you want to extend it by a further 5 days, this is fine. To do this, you will have to pay a proportionate amount personally – in this case 50% of the flights and hotel.

Can I bring my family on a business trip as a holiday?

Bringing your family along to your business trip is possible, so long as you pay for their flights and hotel separately and they are not claimed as business expenses. If you have work during the day but have evenings free to spend with them then that does not invalidate your business trip. It will be treated in the same way as having free leisure time. It may however be easier to show HMRC that you have kept costs separate by booking them their own room. If you do choose to book a family room, again you should only allocate a proportion of the cost as a business expense.

Why claim travel costs through your business

When you’re travelling for business, it can be difficult to keep receipts of all your expenses as well as keep separate any personal expenditure, but it’s very worthwhile doing. For every legitimate business expense, you’re able to reduce your taxable earnings therefore pay either less corporation tax or less income tax. There are plenty of business cards available on the market that will automatically log your expenses onto cloud accounting software to make your bookkeeping far quicker and simpler to manage. If you require any help with claiming your travel expenses correctly please get in touch to discuss either our self-assessment tax return service or corporation tax return service.