First-class travel with a little help from HMRC

Your firm has a policy that all business travel must be standard or economy class. If, at your expense, you decide to upgrade your train journey for first-class travel so you can work en route, can you claim a tax deduction for the extra cost? As a general rule, you’re allowed to claim a tax deduction for the cost of travelling on business. If you’re a director or employee and your employer pays for, or reimburses you the cost of business travel, the payment is exempt from tax and NI. So far so good, but is there a limit to how much you can spend to still qualify for tax and NI-free treatment?

HMRC has long held the view that it’s up to you (or your employer) to decide the mode and quality of the transport. So choosing first class rather than standard travel, even though it might be exorbitantly priced, won’t usually cause you to lose the tax relief. However, the caveat to that is where there’s a reason other than a business one for the more expensive travel.

Examples: Allowable and non-allowable first-class travel

  1. The chairman of a multinational firm hired a helicopter to take him from London to Paris for a meeting, then back to the UK for another. He could have taken a business class ticket on a plane at a fraction of the cost. HMRC challenged, but then accepted the claim because the motive for using the helicopter was wholly a business one, i.e. so the chairman could attend both meetings which he could not if he had relied on scheduled flights.
  2.  Four employees are required to attend a conference. They would normally make their own way there and claim the cost back from their employer. However, one of them discovers that they can hire a stretch limo with bar and that it would cost their employer slightly less than if they make separate travel arrangements. Despite this the reimbursement by their employer would not be tax or NI exempt. The employees would have a hard time convincing HMRC or a Tribunal that the only motive for using the limo was a business one.

Takeaway tip: As with all expenses, they are only tax deductible if they are “wholly and exclusively”, or for employees “wholly, exclusively and necessarily”, for work purposes.

Is the first-class travel necessary?

The “necessarily” condition must be considered where a director or employee claims a tax deduction for the upgrade of a journey and their firm only meets the cost of standard travel. We’ve seen it said that the extra expense isn’t allowable because it wasn’t necessary for the employee to incur it because their employer was already paying for the travel. While that makes sense on the face of it, it’s not correct where the motive for incurring the extra cost is wholly and exclusively for work. The extra expense is necessarily so the employee can do their job and not for any other reason.

Tip 1: You can claim a tax deduction for upgrading your travel arrangements as long as the purpose for doing so is business.
Tip 2: HMRC’s travel expenses guide (booklet 490) contains some helpful information and examples that support the view in Tip 1.