Right now I am enjoying a New Year skiing trip, along with a group of accountants and accounting software vendors, by way of a trade invitation.
This made me think that many small business owners get such invites and may just accept or decline depending on the invitee, the location, duration, your diary at the time etc, but before you accepted or declined an invitation, would you consider, or even understand the potential tax implications of such a trip?
In the UK, the tax implications of a business trip with both business and social components depend on several factors, primarily focusing on the “business purpose” of the trip and how well it meets HMRC’s requirements for allowable business expenses.
This is the same consideration you need to make if you are setting up your own Team Trip, Away Day or retreat for your employees.
Here are the key considerations:
Determining Business Purpose and Allowable Expenses
Primary Purpose – If the primary purpose of the trip is business-related, such as an away day strategy meeting, or a specific training exercise then it would usually be treated as a business expense. However, HMRC requires that you be able to demonstrate that this is the main reason for the trip, so documentation such as itineraries, meeting agendas, attendance records etc would help substantiate this.
Wholly and Exclusively Test
HMRC applies a “wholly and exclusively” test for business expenses. This means that expenses must be incurred solely for business purposes to qualify for tax relief. But as we know, many genuine work trips will always include some social activity, particularly if over a longer period or abroad as an example, as I am. As long as the social activities are incidental and not the primary purpose, the trip may still qualify as a business expense.
Expense Allocation for Mixed-Purpose Trips
Separating Costs: Where your trip includes both business and social elements, you should apportion the costs where possible. For example:
Travel and Accommodation – If the travel and accommodation are required for the business part of the trip, they may be allowable, but only the proportion related to business purposes should be claimed.
Meals and Entertainment – Any meals, entertainment, or events directly associated with business meetings or training may be allowable. However, if there is a clear social element, these costs should be excluded from the claim, as HMRC does not allow tax relief on purely social or personal expenses.
Employee Benefits and PAYE Implications
Employee Travel For employees – If the trip includes significant social activities, HMRC may view this as a benefit-in-kind, which would need to be reported on a P11D form. This could create an income tax liability for the employee, and the employer may also have to pay Class 1A National Insurance on the taxable benefit.
I would always suggest that you run any plans for this kind of activity past your accountant before booking, as I have seen the excitement and motivation be lost from employees who return from a trip to find a tax bill!
Employer-Funded Social Events – Certain social events are tax-exempt if they meet the criteria for the annual events exemption (e.g., Christmas parties with a cost under £150 per head). However, if these social aspects are part of a business trip, they are unlikely to qualify under this exemption unless they meet strict conditions.
VAT on Business Expenses with Social Components – For VAT purposes, only the business-related portion of expenses can typically be reclaimed. For instance, you may be able to reclaim VAT on accommodation and meals directly related to business activities, but any social event costs would generally not qualify.
Record-Keeping Requirements
HMRC requires detailed records for mixed-purpose trips. Keeping a thorough record of the business agenda, participant lists, and itemised receipts can help demonstrate the allocation between business and social costs if HMRC queries the expenses.
Example Scenarios:
Scenario A: Predominantly Business with Incidental Social Activities:
If the primary purpose of the trip is business, such as the Away Day Strategy Session, and the social activities are minor, then most expenses could be considered business-related. Travel, accommodation, and relevant meals may be allowable.
Scenario B: Balanced Business and Social: If the trip is equally social and business-oriented, such as an overseas Strategy Retreat) then it may be more challenging to justify wholly and exclusively for business. In this case, a portion of the costs (typically the social part) would not qualify, and HMRC may also expect an apportionment of travel and accommodation costs on the basis that the overseas location was the hook / benefit.
I suppose the basic take away is that there is no such thing as a free lunch….
Anyway, I must dash, as I am off for an incredibly exciting Après-ski chat on the UK economy.
