Is a work trip with leisure time a taxable benefit?

How a work trip might increase your tax bill.

Your company covers the cost of the trip, flights, accommodation, food, activities, everything, and claims corporation tax relief on it as a business expense.

When does a work trip become a benefit in kind?

But if it's a work trip that also includes non-work activities, HMRC treats it as a benefit in kind. That means your employees become personally liable for income tax and National Insurance on the value of the trip.

HMRC's Employment Income Manual looks at what the trip was needed for. Where a trip was necessary for the employee's duties but includes some private spending, such as a short break taken during an overseas conference, HMRC's instruction is to examine the expenses individually and allow only those that were necessarily incurred. It tells its officers not to accept a percentage split based on the time spent on business and non-business activities.

Trips that are mostly leisure are treated differently. The manual describes overseas trips labelled as conferences or seminars where the business element is minimal and the itinerary is largely social occasions, excursions and leisure activities, and says no deduction should be permitted for the cost. HMRC's own example is a 7 day sales conference in Marbella with 2 formal sessions and a programme of social events, where the benefit of the conference is chargeable on the employees.

Who pays the tax and National Insurance?

Who pays the National Insurance depends on how the trip was arranged and paid for. HMRC's guidance for employers on private travel sets out three cases:

• You arrange the transport and pay for it: you report the cost on form P11D and pay Class 1A National Insurance on the value of the benefit.
• Your employee arranges it and you pay the supplier directly: you report the cost on form P11D, and add it to the employee's earnings to deduct and pay Class 1 National Insurance through payroll.
• Your employee arranges and pays, and you reimburse them: the money counts as earnings, with PAYE tax and Class 1 National Insurance through payroll.

What is a PAYE Settlement Agreement?

Working out that tax charge for each individual employee gets messy fast, especially on a group trip. That's where a PAYE Settlement Agreement comes in: you agree one lump sum with HMRC that covers the tax and National Insurance for everyone involved, rather than each employee dealing with it individually.

HMRC's guidance says a PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees. Items in a PSA do not go through payroll or onto form P11D, and you pay Class 1B National Insurance as part of the PSA in place of Class 1A.

The guidance gives the cost of attending overseas conferences and the expenses of a spouse accompanying an employee abroad as examples of irregular items, and staff entertainment that is not exempt as an example of something impracticable to divide between employees. Wages, cash payments and high-value benefits like company cars cannot be included.

The deadline to apply is 5 July following the first tax year the agreement applies to. Tax and National Insurance owed under a PSA must be paid by 22 October after the tax year it applies to, or 19 October if you pay by post.

What if the trip is purely business?

If the trip is purely business, no non-work activities involved, the cost is simply deductible for corporation tax, with no personal tax implications for your employees at all.

HMRC's guidance for employers says that business travel not covered by an exemption is reported on form P11D, and you do not have to deduct or pay any tax or National Insurance on it.

What evidence does HMRC expect?

The line between "purely business" and "business plus benefit" is where most of the risk sits, so it's worth thinking through before you book the trip, not after.

HMRC's manual says an itinerary should be available for the trip showing precisely what activities were involved. It also says a token business element, such as a meeting that could equally well have taken place at the employer's premises in the UK, does not make the travel cost necessarily incurred.

Whether the company can claim the cost in the first place is covered in overseas business trip expenses, and the rules for staff events are in client entertaining vs staff entertaining.

Benefit rules, deadlines and HMRC's guidance change, and each trip depends on its own itinerary and how it was paid for, so this is general information rather than advice on your trip. If you want one reviewed before you book, see how we work or talk to us.