October 29th, 2012 / Insight posted in

Stranded staff may face tax bill

HM writes: I went overseas on holiday and was stranded when flights were stopped by the cloud of volcanic ash. My employer paid for me to stay in a hotel and to return on the earliest available flight. Will I be taxed on the cost of the hotel and the flight?

Employers are able to pay certain business expenses without those payments becoming taxable in the hands of the employee, writes Jon Sutcliffe, partner at Kingston Smith LLP. However, payments of most personal expenses will be taxable once they have been received by employees.

As your extended holiday at the expense of your employer did not have a business purpose, HM Revenue & Customs (HMRC) will treat this as payment of your private expenses. As a result, it will be taxable. Depending on whether the employer reimburses your costs or whether it paid your invoice direct, the tax will be collected through your P11D form or the payroll in the same way as salary. In either case, the National Insurance will be collected through the payroll.

Had you been travelling on business the position might have been different because the expenses would have been incurred in the performance of your duties. If your trip had a dual purpose (for example, you had incorporated a visit to an overseas customer into your holiday), HMRC might have permitted part of the extra cost to be counted as a business expense, while the other part would have remained a taxable benefit.