Friday 29th August 2008 Blog

Getting Your Clients Business to Pay for Their Holiday!

Its holiday time and your clients may be tempted to get their limited company to pay for some or all of their holiday costs. If they do this they will normally be taxed on the entire cost, but exactly when they pay the tax depends on how it was arranged.

If their company contracted with the supplier, the cost is not immediately taxable on them. But where the trip had no business function the cost must be included on the annual form P11D and they 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 your client as the employee does not have to pay NI on the cost.

Alternatively they may have arranged it themselves and then their 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 their trip is business related. Perhaps they have a customer in Switzerland they need to see. If their company pays for them and their spouse to have a week in Switzerland the total cost must be apportioned according to the business and personal elements. They should make a note of who attended the business meetings, on what days they were held, and any associated costs such as meals. If their spouse was not involved in the business meetings, their part of the cost is not a business expense, so must be declared on your clients P11D, or on their own P11D if they are also an employee of your clients limited company.

The tax rules are different for companies and for unincorporated businesses. When your client works 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.

Posted by: Bookcert Mentoring Team

Friday 29th August 2008

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