Getting Your Business to Pay for Your Holiday!

It's holiday time 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 it was arranged.

If your company contracted with the supplier, 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 NI 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 it yourself and then your company picks up the bill. In this case the cost 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 see. If your company pays for you and your spouse to have a week in Switzerland the total cost must be apportioned according to the business and personal elements. You should make a note of who attended the business meetings, on what days they were held, and any associated costs such as meals. If your spouse was not involved in the business meetings, their part of the cost 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' NI due when the business pays for the owner's personal expenses. The personal element 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.