Are working holiday costs tax allowable?
Working Holiday – Allowed for Tax?
If you are organising a pleasure trip but plan to mix some business work in there, you might want to double-check if the costs incurred during this trip would be allowable to be claimed through your business. In other words, find out what is your tax deduction for working holiday. The business purpose mixed in the personal trip could be anything from fulfilling business obligations like meeting a client, finalising a business deal or searching for a new office space etc.
HMRC has declared that expenses incurred “wholly and exclusively” for business purposes including business travel can be claimed as an allowable expense for tax purposes. However, sometimes when incurring business costs, there can be personal costs incurred within these elements. HMRC has confirmed that these personal elements will not jeopardise one from claiming the business elements of these costs. It is important for employees to understand which expenses can be claimed and which can not be claimed when travelling for holidays with business elements.
This article has been curated by our tax accountants to help you understand the costs that can be claimed when taking a working holiday. To help you determine which expenses qualify for tax relief. We will be discussing different situations that can occur when travelling for business or private purposes. Moreover, we will help you understand how these can impact the costs you might want to claim through your business. Tracking and measuring these elements can be quite tricky for businesses; our guide explains how poor bookkeeping can impact business performance.
Video: 15 Ways to Reduce Corporation Tax
Reducing how much corporation tax you pay can be a complex issue. In this video, we have highlighted the easiest ways to reduce Corporation Tax. Watch now.
What happens when you incur business, private and mixed expenses when travelling?
Expenses are tax-deductible if they are ‘wholly and exclusively’ incurred by the company for business purposes. This is a very general rule which businesses understand, for estimating tax-deductibility of expenses. However, the rule is modified for expenses incurred while performing job-related duties. It may not be as simple as stated. Therefore it’s advisable to speak to an accountant before working out the problem. We, however, look at some examples to understand how mixed expenses with private and business elements are treated. We will then understand how business elements in a private holiday can be claimed?
Example 1 – Travelling to a Client’s Premises including Home & Office
Let’s suppose the director of a company frequently visits one of the company’s clients during his journey from home to the office. According to the rules, any journey from the home to the office can not be considered as tax-deductible. This is because travelling from home to the company you are working for is considered as a private journey. However, in this case, there are two journeys. One where the individual visits his client for a business-related purpose. The other is visiting the office after meeting the client. The second part of the journey qualifies the condition mentioned above. While on the other hand, the first part, which qualifies as commuting does not meet the requirements.
What do the above interpretations mean for you?
The interpretations, according to the legislation, arising from the example above confirm that there can be private and business elements in a journey. Therefore, HMRC will allow the business element of the cost of these journeys as a tax-deductible cost.
What if I have elements of leisure during my business journey?
In the example above, one can easily identify and separate the elements of the business costs from private expenditure. In the next example, we will see how a business element is undertaken in an otherwise private journey.
Related: If you are looking to work overseas, you might want to read about the impact on your UK taxes.
Example 2 – Private and Business Expenses mixed together
Let’s assume that you have to travel a hundred miles to meet a client. You book a hotel to stay overnight, and the next day you visit the cinema for entertainment purposes. It’s clear that the expenses incurred while travelling to the cinema count as a private journey and will not be tax-deductible. The same approach will be applied to a journey that is for personal reasons and has some business element in it. HMRC has however confirmed that if your business trip has personal elements or vice versa. The business elements of the cost will still be allowable even though there are personal elements within.
Related: Learn more about what car expenses you can claim.
What do the above interpretations mean for you?
As deduced from the above example, if you incur private expenses during a business journey. The business-related expenses of the trip still remain tax-deductible. In order to claim the deduction, you will have to distinguish between the private and business aspect of the journey and separate out the private element before making a claim. This automatically implies the expenses incurred while travelling from home or work to the customer and the hotel are tax-deductible. Moreover, the private element of the journey, the movie at the cinema is not tax-deductible.
An approach like this can also be utilized to distinguish between deductible and non-deductible costs when you are going on a private trip but also engage in business activities while you are at it.
Example 3 – Private trip mixed with business elements
Let’s assume the director of a company has booked a holiday in the Netherlands. The director has also planned to visit Leiden to meet his office colleagues for business-related purposes while leaving his family back in Amsterdam. It is quite clear from the situation that the cost incurred to arrange the entire family trip to the Netherlands, that includes transportation, hotel charges etc. are private expenses. Hence, these expenses are not tax-deductible. When visiting Leiden, which is a small part of the private trip, but as this was planned for business purposes, the expenses incurred while staying in Leiden are tax-deductible.
We advise you to keep track and store every receipt of the expenses you incur while on your business trip. This will help to separate the tax and non-tax deductible expenses easily. You can also make things easier for yourself by finding a competitive accounting firm nearby to help you work out your tax and non-tax deductible expenses accurately.
The conclusion is that if you have business costs incurred during a private trip or vice versa, the business element of the cost is allowable and will be allowed to be claimed for tax purposes by HMRC. If you plan to incur business costs while on a personal trip, make sure you keep sufficient records and maintain proper accounting records. Speaking to a bookkeeper can help you build a strong business foundation.
Related: Learn more about claiming tax relief on employment expenses.
Clear House Accountants are expert Accountants in London who have extensive knowledge and expertise in accounting and tax and have worked on various complicated tax-related affairs for organizations of different sizes. With years of experience, our Personal tax accountants have been very successful in helping clients file accurate tax returns while saving them money.
Jinesh is a Senior Business Accountant, with a masters in Finance from Westminster University, and specializes in tax and accounting for small to medium businesses with a turnover less than £ 3 Million.
He specialises in helping creative businesses understand and manage their accounting and tax needs and obligations.
As accounting ecosystems evolve, their potential to add value also grows. This has increased the focus on digital solutions to tackle complex business problems. Jinesh helps businesses see the opportunity in this and helps businesses become more efficient and increase performance, using the right solutions.
Some of the key things he focuses on are:
- Helping businesses gain insights from their business data
- Providing complex tax and accounting solutions
- Helping businesses prepare for complex industry developments and changes