A salary sacrifice tax-saving scheme for overseas business trips
If you or your staff travel abroad on business, you can pay generous HMRC-approved tax and NI-free accommodation, travel and subsistence allowances. How can you take maximum advantage of these?
Where you or your employees travel on business in the UK, HMRC expects you to keep detailed records and documentary evidence of the expenses incurred. These are tax deductible for both the employee and your company. There are some concessions which allow you to pay tax-free expenses without receipts, but these are for relatively small amounts. However, when it comes to an overseas trip HMRC is rather more generous, as this list of “benchmark rates” demonstrates.
The 92-page list shows how much can be paid tax and NI free to a director or employee who travels abroad. It saves the hassle of, say, trying to extract a receipt from a Greek taxi driver. The list shows, country by country, the amounts that are allowed for each type of expense, e.g. hotel, lunch, dinner etc., or you can pay a round sum to cover the lot. Unlike most travel expenses, the payment doesn’t have to be reported on Form P11D.
Tip. You don’t actually have to spend the money to qualify for the tax and NI-free allowance.
Example. Acom Ltd sends two of its sales force to a trade fair in Geneva; they arrive on Monday midday and catch a flight home early Thursday evening. Acom leaves it up to the employees to pay for everything except the flight which is settled direct with the airline. It pays each employee €1,123, that’s about £710, to cover all food, accommodation and local travel costs. The employees manage their costs well and stay in a modest hotel. They actually only pay out £450 each meaning they walk away with £260 tax and NI free.
Tip. If you have employees who regularly travel overseas, you can pay them the full tax-free allowance instead of the actual costs. This will give them scope to make some tax-free money by spending less than the benchmark amount. To compensate you for paying them more for their trip, you can reduce their normal salary correspondingly. This means you’ll both be winners by saving tax and NI on the profit they can make from spending less than the allowance.
Trap. This salary sacrifice arrangement must be agreed in principle before the employee gives up any pay, or it won’t count for tax purposes.
The salary sacrifice scheme can be used by directors as well as employees, but there might be a way for directors to get a more straightforward perk from the benchmark rates.
Tip. A trip across the channel to pick up booze for the firm’s Christmas party, staff or customer gifts etc. counts as a bone fide business trip for tax purposes. Make a break of it: you can spend a day and a half in France, your company can pay the UK travel costs including the ferry etc., your French hotel bill and give you €171 to cover meals etc. while you’re there, all tax free and NI free. Bon voyage!
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