Anyone travelling abroad on business may take one look at the UK’s weather forecast and decide to extend their stay overseas into a holiday. Great idea but what are the tax consequences?

The rules are complex but, in broad terms, the cost of travel which is wholly, exclusively and necessarily incurred in the course of employment, or wholly and exclusively for the purposes of a self-employed person’s business, is allowable as a deduction. But be warned: if the booking is arranged to combine the business trip with a holiday, then the trip will have a dual purpose and, for employees especially, that risks prejudicing the tax-deductibility of the travelling costs.

Certainly any additional costs relating to taking a spouse, partner or other family member along will not be allowable and, if met by the employer, will be a taxable benefit in kind. The only exception to this, very rarely allowed, is where

• the traveller’s partner plays an active role on the trip and,
• if the partner is not an employee or business partner too,
• the place visited is one where the cultural norm is for a traveller to be accompanied by a spouse.

HMRC will also consider the primary purpose of the trip:

• fitting in a little business to a holiday will not make the cost of the trip tax deductible; but
• where a legitimate business trip is extended only the element of cost strictly relating to the business trip is allowed.

Booking a package trip to the destination for the business meeting may be cheaper but it can bring with it a 'duality of purpose' if there is any suggestion that the underlying purpose of the trip was more holiday than work and any personal expenses will not be allowable.

If a business trip is extended into holiday, problems can arise with travel:

• the outward trip may be exclusively for business
• but the return, especially if booked separately, is personal.

Accommodation for the duration of the business part is allowed but the hotel, etc costs need to be split between the business and personal stay.

Finally, care is needed with entertaining by employees, which includes directors of companies.

Entertaining is not allowable as an expense of the employer. However, if the expense is entertainment undertaken wholly and exclusively for the purposes of the employer’s business, the employee is not taxed on a benefit in kind. But if the true purpose of a trip, e.g. to a sporting or cultural event, is personal to the employee, the cost is treated as a benefit in kind, not entertaining. This means that the employee is taxed and the employer pays National Insurance Contributions on the cost or value of the benefit: the employer should then get a business deduction but the overall income tax and NIC liability are likely to be greater than the business tax saving.

Getting the treatment of travel expenses right also requires correct reporting of expenses. Penalties may be charged for incorrect employer’s returns on form P11D, as well as incorrect personal and business tax returns.