Expensing it, without it getting expensive.

By Stephanie Ewing

October 25, 2023

There has been a huge uptick in employees planning 'workations', either within the UK or abroad - a chance to relax and explore, as well as get your work done, all without eating into your holiday time.

Frome, Somerset

Stays exclusively for the purpose of the work are clearly tax deductible, but the big question is - does a workation count as business travel, to the extent that you can not only have your cake and eat it, but also have a bit extra on top (money)? The answer is... it depends.

The Rule

There's one very important rule from the corporation tax rules we need to understand to navigate this issue - the wholly and exclusively principle.

Put simply: the principle can only be satisfied if the sole reason for incurring the expense is for business.

If an expense has been incurred wholly and exclusively for trade, the costs can be used to reduce the taxable profits of a company (and therefore the corporation tax payable - i.e. the process of expensing).

Books have been written on the subject, and case law is constantly evolving, so if this excites you, then good news - you can read about this at extreme length at your leisure.

Wye Valley, Wales

For the rest of us, some of the important elements that have been used to interpret the principle include:

Intrinsic duality - an expense is not wholly and exclusively for the purpose of trade if the expense was incurred for a non-work reason

For instance, buying a £200 high-vis jacket for your job on a construction site would be construed as being wholly and exclusively part of your trade, but buying a £200 denim jacket because you'll look nice in work meetings is not.

In the travel context, if you are planning a trip to a 5-star resort in Acapulco, but plan to take your laptop on the off-chance you need to "hop on something", the taxman might ask a few questions.

Incidental benefit - the intrinsic business purpose of the expense doesn't change just because there was a non-business side benefit.

Back to our jacket analogy - if you bought the high-vis jacket for work, and it turned out that high-vis jackets were fashionable that season so you could also wear your jack out clubbing, that doesn't change the fact it is a piece of clothing which you acquired for work.

Again, in the travel context, if you book a cabin in the woods to get a project done, but you happen to enjoy looking at the local flora and fauna at the same time, that - importantly - doesn't change the intrinsic work purpose.

Dual purpose expenditure - if an expense occurs for multiple reasons, then it is important to sever the travel expenses from the other expenses occurred. Just because there is one purpose which constitutes a business reason, that doesn't mean you ignore the other reasons.

I don't have a jacket metaphor here...so let's look at travel.

If you booked a place to stay in order to focus on a particular training course that your employer wanted you to complete (perhaps the office is too distracting) but you extended the time you were there afterwards for some sightseeing, you would only have the ability to expense the days that you were there for work; the "holiday" days would not be expensable.

In summary, deciding whether or not any part of a trip is expensable relies on the fundamental purpose of the trip, namely whether it is clearly for business reasons.

Avebury, The Cotswolds

Other considerations

Alongside the cost of the stay itself, it's also worth bearing in mind a few other items which may be expensable, and some other considerations:

Travel - normal commuting cannot be expensed, so you need to ensure you can demonstrate this was not a normal part of you day-to-day travel to an ordinary place of work

Meals - these need to not be extravagant, so perhaps skip any Michelin-starred meals when you're putting your receipts through

Duration - it's not possible to expense something which exceeds the legal definition of temporary (24 months), so digital nomads should consider this when planning out longer-term accommodation

Entertaining non-staff members - planning on meeting up with a customer or client? Surprisingly, this is not expensable so do not include this in your expense claim. However, expenses related to other members of your team who are on the same trip are expensable.

The Cairngorms, Scotland

In conclusion

How best to ensure you don't fall foul of the rules, and plan out your perfect workation trip?

Documentation - ensure you have thoroughly documented everything you plan to expense as part of your trip, and if possible use one of our recommended tools to keep track of everything so that your accountant is still your friend at the end of the financial year.

Apply your own reasonableness test - now that you understand the tests the taxman uses, think about your planned trip and whether or not it is truly for work purposes. It's good practice to only submit expenses for appropriate trips, rather than "chancing it".

Location, location, location - planning a successful workation requires amazing planning to ensure you truly have everything you need to get work done. That means an inspiring backdrop for your trip, a top-tier workspace and high-speed internet are non-negotiable basics. It can be easier to outsource this to a service like Ashore which guarantees every element as part of our overall offering to our guests.

Finally, if there remains any uncertainty over your stay, the easiest thing to do is talk to a professional with detailed knowledge of your particular tax situation.