Hotels & overnight accommodation

Conditions

1. GOV.UK's self-employed expenses guidance lists hotel rooms among the car, van and travel costs a sole trader or individual in a business partnership can claim as allowable business expenses. The same guidance lists travel between home and work among the costs you cannot claim.
2. The statutory test for a sole trader is the 'wholly and exclusively' rule in section 34 ITTOIA 2005, and for a company section 54 CTA 2009 — two of the three provisions named at the head of HMRC's guidance on overnight stays. That guidance states that where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible, and that the reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether or not paid on the same bill (BIM37670).
3. The third provision at the head of that guidance is section 57A ITTOIA 2005, and it is a separate route rather than a condition on the rule above. Section 57A sits in the Act's Chapter 5, 'Trade profits: rules allowing deductions', where section 34 sits in Chapter 4, 'Trade profits: rules restricting deductions'. It states that in calculating the profits of a trade, a deduction is allowed for any reasonable expenses incurred on food or drink for consumption by the trader at a place to which the trader travels in the course of carrying on the trade, or while travelling to a place in the course of carrying on the trade, if conditions A and B are met. Condition A is that a deduction is allowed for the expenses incurred by the trader in travelling to the place, or would be allowed if the trader incurred them. Condition B has two alternatives. The first is that, at the time the expenses are incurred on the food or drink, the trade is by its nature itinerant. The second is that the trader does not travel to the place more than occasionally in the course of carrying on the trade and, on top of that, either the travel is undertaken otherwise than as part of the trader's normal pattern of travel, or the trader does not have such a normal pattern of travel. So a trader who is not itinerant and travels to the place more than occasionally does not meet Condition B, whether or not they have a normal pattern of travel. HMRC sets that route out under its own heading for itinerant trades and occasional journeys outside the normal pattern, and the overnight accommodation and subsistence rule under a separate heading, on both of the pages that carry it (BIM37670, BIM47705). HMRC states that its section 57A guidance applies for Income Tax only (BIM47705), so this is not a route for a company.
4. It does not reach a sole trader's base. HMRC states the deduction does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place (BIM37670). This page states that bar for the sole trader and not for a company. The authorities HMRC cites for it are Mason v Tyson, Prior v Saunders, McLaren v Mumford and its own guidance at BIM66210 (BIM37670), and HMRC's other statement of the same bar — at the base of trade operations — is on guidance that applies for Income Tax only (BIM47705).
5. For a sole trader, HMRC emphasises that it is only 'reasonable' expenses which may be allowed and that the expenses claimed must be supported by adequate contemporaneous records (BIM37670). Where a bill mixes business and private elements, HMRC's guidance on the statutory test distinguishes a definite part or proportion of an expense that is wholly and exclusively for the trade, which is not disallowed because the expense as a whole is not, from an expense incurred for a dual purpose, which is not allowable (BIM37600) — and that guidance is written for section 34(1)(a) ITTOIA 2005 and section 54(1)(a) CTA 2009 together, so it covers a company as well as a sole trader.
6. For a limited company the test is section 54(1)(a) CTA 2009: to qualify for a deduction, the trade purpose of the expense must be the sole purpose (BIM37600). HMRC's guidance on a company's staffing costs carries a second route for a cost linked to the personal interests of a director: HMRC says to consider whether the expenditure gives rise to benefits taxable on the director as part of their remuneration package, and that if the expense is taxable on the director as part of that package, you should allow the deduction as part of the costs of employing the director (BIM47107, headed section 34(1) ITTOIA 2005 and section 54(1) CTA 2009). Whether the company's payment is tax-free for the director or employee who stays is a separate question, under the employment income rules below.
7. For an employee or a limited company director, hotel costs have no rule of their own: they ride on the travel rules. EIM31815 states that travel expenses for sections 337 to 339 ITEPA 2003 include 'the cost of the accommodation and any necessary meals where an overnight stay is needed - this will be the case even where the employee stays away for some time'. There are two routes: section 337 allows a deduction for expenses necessarily incurred in the performance of the duties, and sections 338 and 339 for expenses attributable to the employee's necessary attendance at a place in the performance of the duties, except where they are expenses of ordinary commuting or private travel (EIM31815).
8. So on the employee side the hotel follows the journey: where the travel is deductible, the accommodation that goes with it can be too, and where the journey is ordinary commuting, it is not. Whether a journey itself qualifies is a separate test with its own conditions, which this page does not set out, and section 339A ITEPA 2003 has separate rules where services are provided under arrangements involving an employment intermediary. If you are an employee or director, or you work through your own company, an agency or an umbrella company, that is a question about your own working arrangements that is worth having an accountant check.
9. For employees the amount is not the test. HMRC states that the tests that apply to travel expenses relate to the nature of the expense and not to the amount, and that a deduction should not be refused for the actually incurred cost of a hotel room simply because a less expensive alternative is available (EIM31835). HMRC's guidance on the scale of accommodation expenditure is written for the limit on relief under section 338 ITEPA 2003 where an employer provides an employee on secondment at a temporary workplace with furnished living accommodation or a cash allowance to obtain it (EIM31836). On that guidance, where the employee stays in a hotel or boarding house, relief should be permitted in full for the costs actually incurred where the accommodation is of an appropriate standard, which can reflect the seniority of the employee, the availability of accommodation and the nature of the employment (EIM31836). Relief may be restricted where the standard of accommodation does not result from business need — for example where accommodation is supplied in part because the employee is accompanied by family, or its location is chosen for non-business convenience and costs more as a result (EIM31836) — and where the arrangements are unusually lavish HMRC considers whether the expenditure is genuinely attributable to business travel or is some sort of reward (EIM31835).
10. Apportioning a mixed bill has its own rule on the employee side. HMRC's general rule for employees' expenses is that a single expense can be apportioned if a definite part or proportion of that expense can properly be attributed wholly and exclusively to the performance of the duties, and that part can be deducted while the rest cannot (EIM31661). HMRC also states that you cannot apportion expenditure where it serves two or more purposes concurrently and one of those purposes is not to do with the performance of the duties, and that there is an exception to that rule where the non-business purpose is merely incidental to the business purpose (EIM31661), the whole of an expense being deductible where any personal or private consequences are purely incidental (EIM31664).
11. Where an employer pays or reimburses an employee's costs, section 289A ITEPA 2003 means no income tax arises on the amount where an equal or greater amount would be allowed as a deduction from the employee's earnings under Chapter 2 or 5 of Part 5 — Chapter 2 being where the travel rules above sit — and the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements. For an amount treated as earnings as a result of the provision of a benefit, the corresponding exemption is section 289D ITEPA 2003, which turns on whether an equal amount would be allowed as a deduction under Chapter 3 of Part 5. GOV.UK adds that if an employer reimburses more than the necessary costs of business travel, the extra amount counts as earnings, and PAYE tax and Class 1 National Insurance are deducted and paid on it through payroll.
12. An employee who pays for an overnight stay on a journey that qualifies can claim tax relief: GOV.UK lists hotel accommodation if you have to stay overnight among the costs you can claim, and states that if your employer has paid some of your expenses, you can only claim tax relief on the amount they have not paid. If you complete a Self Assessment tax return, you must claim through your tax return instead.

Common mistakes

• Claiming the whole hotel bill when leisure nights were added to a business trip. HMRC's guidance covers the nights a business trip necessitates (BIM37670), and distinguishes a definite trade part of an expense from one incurred for a dual purpose (BIM37600).
• Claiming accommodation at your base of business operations as a sole trader. HMRC states the deduction does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place (BIM37670).
• Applying one side's cost test to the other. For a sole trader it is only 'reasonable' expenses which may be allowed (BIM37670); for an employee, the tests relate to the nature of the expense and not to the amount (EIM31835).
• Treating every hotel bill an employer pays or reimburses as tax-free, or treating the deduction test as the only way it can be tax-free. Under section 289A(1) ITEPA 2003 no income tax arises where an amount equal to or exceeding the amount paid or reimbursed would be allowed as a deduction from the employee's earnings, and not where the payment is provided pursuant to relevant salary sacrifice arrangements. That is not the section's only route: section 289A(2) also exempts an amount that has been calculated and paid or reimbursed in an approved way, and section 289A(2A) an amount paid or reimbursed for expenses in the course of qualifying travel calculated in accordance with regulations made by HMRC — each subject to its own checking conditions in the section. Which route applies turns on how the employer calculates and pays, which this page does not set out, so it is worth having an accountant check.

What to keep

• Hotel receipts or booking confirmations. For an employee claiming relief, GOV.UK states that if you claim hotel and meal expenses you will need to send receipts that include the date of your stay and the name of the hotel.
• For a sole trader, adequate contemporaneous records: HMRC emphasises that the expenses claimed must be supported by adequate contemporaneous records (BIM37670).

Real-world example

A freelance project manager trading as a sole trader is engaged for a six-week rollout at a client's site in Edinburgh. She lives in Manchester, and the client's site is not her base of business operations. The hotel costs for the nights the work requires her to stay are deductible: HMRC's guidance is that where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible (BIM37670). On two weekends she stays on in Edinburgh for personal reasons; those are not nights the business trip necessitates, so she leaves them out of the claim. Had she done the same engagement through her own limited company, she would be on the employee side of the line, where the hotel follows the journey — and whether those journeys qualify, including under the separate rules for services provided through an employment intermediary, is a question to have an accountant check rather than settle from this page. The company's own deduction for what it pays sits on the corporation tax side, where the trade purpose of the expense must be the sole purpose (section 54(1)(a) CTA 2009, BIM37600).

Frequently asked