Tax Tips 3: Getting your Business to Pay for your Holiday!
It's the holiday season and you may be tempted to get your limited company to pay for some or all of your holiday costs. If you do this you will normally be taxed on the entire cost, but exactly when you pay the tax depends on how the holiday was arranged.
If your company contracted with the travel agent, airline or hotel to provide tickets and accommodation, the cost is not immediately taxable on you. But where the trip had no business function the cost must be included on the annual form P11D and you will pay the tax due in the following tax year, or the next one. The company has to pay class 1A national insurance at 12.8% on the value of benefits declared on the form P11D, but you as the employee do not have to pay NI on the cost.
Alternatively you may have arranged the holiday yourself and then your company picks up the bill. In this case the cost of the holiday should be treated as extra salary at the time the company pays the bill, so effectively the cost is put through the payroll, incurring both employers and employees NI.
It is possible that some part of your trip is business related. Perhaps you have a customer in Switzerland you need to visit. If your company pays for you and your spouse to spend a week in Switzerland the total cost of the trip must be apportioned according to the business and private elements. You should record who attended the business meetings, on what days they were held, and any associated costs such as local travel, and meals. If your spouse was not involved in the business meetings, their air fare and accommodation is not a business expense, so must be declared on your P11D, or on their own P11D if they are also an employee of your company.
The tax rules are different for companies and for unincorporated businesses. When you work as a sole-trader or in a partnership, there is no employers' national insurance due when the business pays for the owner's private expenses such as a holiday. The private element of the trip is treated as part of the business owner's profit for the period and will be subject to income tax and class 4 NI, just like the rest of the profits made in the period.
Chris Thomas, One Accounting Ltd
- Guest blog post: self-employed? Here’s how to take control of your pension situation
- 2-Step Verification is here!
- What we’ve learned about Making Tax Digital from the new consultation documents
- Video: limited company directors’ responsibilities explained by HMRC
- Change to browser requirements