Overnight trips and hotel bills – the ‘incidental expenses’ allowance


Let’s say you go away on business for your company. You pay for the hotel and meal and then present your company with the invoice and an expense claim. Because the cost of the hotel and associated meal was incurred ‘wholly and exclusively’ in the performance of your duties, you won’t be taxed on the reimbursement by your company.


But, what if the hotel bill had included additional services like pay-per-view movies or a charge for the use of the hotel gym? Both of these would be treated as personal expenses and therefore, if your employer reimbursed you with the cost of these, you’d be taxed on them. However, if the cost of the movies and gym had been included as part and parcel of the room tariff and not charged separately on the bill, you’d had have no tax to pay.


Even in cases where the additional ‘personal’ services are shown separately on the hotel bill and your company reimburses you for these personal expenses, they’re exempt where, on average, they don’t exceed £5 per night while staying overnight in the UK or £10 per night overseas. And it doesn’t matter what you spend the £5 or £10 on – movies, newspapers or the mini-bar; the choice is yours.


An important point here is the word ‘average’ which I used above. Let’s say that you stay at a UK hotel for two nights and spend only £1 on the first night and £9 on the second night. That’s £10 over two nights, so the £5 ‘average’ rule is met and you won’t be taxed on the reimbursement of the £10 by your company. But if you’d spent £1 on the first night and £10 on the second, you’ve exceeded the £5 average and you’d be taxed on the entire £11. For a higher rate taxpayer that’s going to cost £4.40 (40% x £11).


You could have avoided this tax charge by asking your company to pay precisely £5 (or £10 if overseas) per night as an allowance for personal expenses, whether or not you spend it; in other words, keep those ‘personal’ costs off the hotel bill and get your employer to pay a flat-rate £5 or £10 per night to you for ‘incidental expenses’.


If you don’t spend it, it’s yours to keep and you won’t be taxed on it. But keep the ‘personal’ expenses off the main hotel bill.

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David Elliott

Chartered Accountant, BSC, FCA

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