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Can you claim tax relief if you pay to upgrade your flight on a business trip?

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Reader Mario sent me a link to an interesting discussion on the taxation.co.uk website.

It is often possible to pay an additional sum at the airport to upgrade your flight.  Some airlines even have cards on the check-in desks with a price list.

British Airways also occasionally offers upgrades via ‘Manage My Booking’ in advance of travel.  It is also trialling a feature to have upgrade offers pop up on your mobile phone once you have already checked in and are in the departure area.

These deals can be good value, especially if you qualify for additional miles or tier points from the higher class.  (Not all airlines allow this, so be careful if it is offered.)

If your company policy is that a certain flight must be in Economy, and you personally pay a few hundred pounds to upgrade to Premium Economy or Business Class, you clearly can’t hand in your receipt to your employer and ask for the money back.

But …. can you ask the Inland Revenue, via your self assessment tax return, for tax relief on the money you spent?

Claiming tax relief on airport upgrades

This would be a chunky sum, as most people who travel for work will be in the 40% tax bracket.

Looking at the taxation.co.uk article, the answer is ‘Yes’.

(To read the article in full, you have to cut and paste a few words from the article into Google and then click back through.  This will show the full article rather the extract you see if you follow my link.)

The logic behind the decision seems clear:

HMRC is happy to reimburse premium cabin travel – there is no rule saying that only economy tickets are tax deductible

You are incurring an allowable business expense ‘wholly’ in the course of undertaking your employment, which means you can claim tax relief on it

The cost would go into Box 17 on the ‘Employment’ section of your self-assessment return.

Here’s a rough example of how this could work out

Imagine that you are flying to New York on a heavily discount British Airways Economy ticket for work.  At check-in you are offered an upgrade to Premium Economy for £300 one-way.  You are a 40% taxpayer.

Additional Avios earned (3458 – 865):  2,593 Avios

Additional tier points earned (90 – 20):  70 tier points

Net cost to you after tax relief:  £180

Given that you would get seven hours in the far better World Traveller Plus seat, plus a chunk of extra Avios, plus a chunk of extra tier points (most people consider £2 per tier point a fair price), you are coming out of this OK.

The only downside is that you have to pay the £300 now and won’t get the benefit of the tax relief for a year or more.  On the other hand, you’ll earn full miles on the £300 credit card spend whilst the tax relief will arrive via an adjustment to your tax code!

Can you get tax relief if you use Avios to upgrade?

We are now talking outside of the remit of the article I am discussing, and these are only my personal thoughts.

Air miles are generally treated as having no value for tax purposes.  You are not taxed when you receive them.  Using that logic, you should not be able to claim tax relief for the value of Avios you use to upgrade a work flight.

The Avios terms and conditions also make it clear that your points are actually the property of Avios Group and have only a nominal legal value.  This would also count against being able to claim they have a value for tax relief.

However, if you went to ba.com and bought some Avios which you used to upgrade your flight, I think you would have a better case for claiming tax relief on that payment.  At the end of the day, HMRC does not ask to see receipts for the tax relief you are claiming so it would only come up for discussion if they chose to investigate your return.

Clearly you shouldn’t take tax advice from me though …..

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Comments

  1. Genghis says:

    I don’t think the logic is fully clear given that for employees such expenses need to be wholly, exclusively and necessarily incurred. However, the example quoted from the handbook of first class rail travel not being disallowed under the “necessary” test is interesting. More evidence needed I think… Thankfully I don’t have to contend with such problems.

    • For *employees*, how many other things are there that CAN’T be claimed back from the employer as a business expenses due to company policy but CAN be offset against personal tax as a business expense via HMRC?

      • Genghis says:

        Many. I use for professional subscriptions as my co policy only allows to claim one.

        • Zero can be claimed with mine, and they amount to over £1k/year (almost all mandatory too!).

      • Depends entirely on the company’s policy. Generally there will be a lot more that falls into the other bucket ie stuff you can get refunded by your employer but you could not get tax relief for.

        Any half decent expense policy should cover you for any expenses incurred wholly, exlusively and necessarily in the course of employment, of course.

    • Agreed, this is an area HMRC are not really interested in. The test for an employee is that an expense is “wholly, exclusively and necessarily” incurred for a business purpose.

      Your employers travel policy is neither here nor there. Technically if work pays for travel directly then it doesn’t affect your personal tax position. If you pay and they reimburse you the cost, you incur the expense which is deductible but the reimbursement is taxable so again no effect overall. There is no BIK for work-related travel either.

      If you pay for your own travel then this is deductible as long as it meets the “wholly, exclusively and necessarily” test. In my experience, HMRC have never sought to distinguish betweeb forms or classes of travel. Where would you stop? You got the train in first when you could have got the Megabus for £1, etc…

      It’s not unusual to claim for allowable expenses that your employer won’t pay for – Gengis’s exampe of professional fees is a good one. Similarly not unusual to claim for mileage that isn’t reimbursed, and I had a colleague who claimed relief for cycle mileage as he cycled between offices on his Brompton.

  2. James Hadley says:

    I think if you can make a business case for it, for example, needing to do some work on the flight (which is very hard to do in economy), it wouldn’t be a problem.

    I have worked for a university that has an odd policy: except for a very small number of people, all flights must be economy HOWEVER they do not care that much what it costs and they always book through a very expensive travel agent.

    • Andrew (@andrewseftel) says:

      I once worked at a company that changed its train travel policy to allow first class if the cost was some fraction less than a walk-up standard fare (I.e. with advance tickets ). I’m told that the average cost per booking plummeted as employees became incentivised to book cheaper tickets.

    • You always need to be sensible and flexible if you are a prudent employer. I went to Russia recently for work and a direct BA economy flight was £600 with pathetic service and a SWISS business via ZRH was £450. Guess which one we bought…

      • Some of the direct flights are on B787 on long-haul configuration though, so Premium Economy cabin is available and the business class cabins are often empty. I got free upgrades from Premium Economy into Club World twice out of 4 flights to Moscow I took in the last year. BA Silver. Also 5k avios PE > Club World is good value.

        • I got an upgrade once on A321 – absolutely unexpectedly. Then I had a very expensive Y ticket and expected an upgrade 99% but got nothing – it’s so unpredictable!

  3. Nigel the Pensioner says:

    One must be very careful not to take the Micky too much… It is not ESSENTIAL to travel for business in a premium cabin. You will get to your destination just as safely in steerage. However, if your employer feels it is a benefit to the business for you to travel (long haul) in a premium cabin – flat bed, arrive refreshed, straight into business meeting, looking the part to represent the company etc etc, then they should fund the premium cabin travel. If they don’t care how you represent them after a long haul flight, simply get another job!
    All loyalty points from the days of green shield stamps on had a nominal monetary (cash) value, however the actual monetary value would often be 100x the “face” nominal value. This could easily be interpreted as a “benefit in kind”, just like a company car!!! You know where this is going now. So far from claiming tax back on an unnecessary business expense, you now face a tax bill on the actual monetary value of the Avios you have chopped in to upgrade! Then the question is asked, “How many Avios have you earned in the last 7 years?” That is the historical time that these leeches can hound you for. Now it turns your attempt to claim tax relief on Avios chopped in, completely on its head!
    Beware…

    • Genghis says:

      HMRC have already got very clear guidance out there that points earned from business travel are outside the scope of tax and hence not a BIK.

      • +1. Also, who in any normal industry quits their job because of the travel policy?

        • Genghis says:
        • Joseph Heenan says:

          Maybe not quit their job, but I’ve had several roles where travel was not a core part of the job and essentially optional. The travel policy was technically premium economy on long haul (8+ hours), but the actual practice was that there was always an excuse why travel had to be in economy (premium is full, the cheapest airline doesn’t do premium, premium is too expensive, etc).

          When I was young and naive I didn’t catch onto this. After gaining some wisdom I had considerable success applying a “if you want me to travel long haul it’ll need to be in business” position, though your boss or HR isn’t always the person you talk to about that – for a long time my flights were being booked & paid for by the satellite offices instead of our head office where I was based for this reason. (Head office got rather upset when they caught onto this but it took them a few years.)

          Now I’m independent and have a handful of clients that’ll only pay for Y in long haul, and the maths for that policy often doesn’t stack up as they pay us for travel time and I can’t generally get any work done in Y. In a lot of cases it’s not an argument worth having and we pay the difference for premium or business, a good portion of which is basically covered by the amount billed for travel time. (Or maybe they are pretty savvy and have figured out that style of arrangement helps keep people motivated to keep travel costs down.)

          Regardless we keep the cost down and, given we usually have flexibility as to travel dates, the cost has never been more than £2.6K for a long haul business flight whether it’s us or the client paying.

        • If I asked you to fly to China every week for a 24 hour visit, in Economy, leaving on Sunday morning … would you stay in the job? No, not if you’ve got any sense. There is a level at which anyone would walk, it just a case of where you personally draw the line.

        • Rob, I would just move to China!

        • If the base pay was good enough, then I’d be on that flight – China here we come! Of course for such crappy working conditions the base pay would have to be ridiculously good – but shows the point that looking at a good/bad travel package in isolation from other pay and conditions is nearly meaningless.

        • Exactly.

      • I’ve never understood this. How many other non-cash benefits are ignored by HMRC?

        • Genghis says:

          Many. I’m surprised we get away with quite a few at my place of work but there’s some interesting arguments that HMRC have accepted.

        • It follows HMRS’s general rule that BIK is taxed at cost to the employer less amount made good by employee. Since the employer did nor incur any costs in getting the Avios, there is no BIK.

      • … and I’m very glad that’s their their take on it otherwise there’d be some horrible tax bills for many on this site! 😛

    • “Simply get another job….” Yes because life is that easy!!!? Having said that I do basically agree with the thrust of your post.

    • HMRC are not there to dictate a travel policy for businesses and HMRC would not be paying for the premium cabin in itself, your business would be, travelling in premium is not essential and is a choice by the person paying the bill.

      HMRC are not going to care what the travel product is called whether it is business or economy, what they care about is whether you are travelling for business or pleasure.

      It is like going to a restaurant and worrying if choosing the fillet steak is essential as opposed to having a sandwich and crisps, not a HMRC issue rather a business choice.

  4. Felix Flyer says:

    Related question. Could you claim tax relief for points purchased to fund a hotel stay for business purposes?

    • I don’t see why not if it was the full amount and cheaper than alternative cash prices

      • Joseph Heenan says:

        I don’t believe HMRC have any requirement for “cheaper”. (Of course from a points perspective it would only make sense to do if it was cheaper as you’re losing the ability to earn points from the stay!)

        • Felix Flyer says:

          Sorry for late reply. Thanks for your thoughts. The rate with bought points (100% IHG bonus) was substantially cheaper. $200 cash price per night before local taxes added against 20000 points with zero taxes. Hence I bought 200000 points for $1000.

  5. Wish I had known this years ago!

  6. I don’t see why HMRC care about the standard of travel class, people choose to hire private jets for business and this would still be a deductible expense, this is more of a business decision for the employer rather than a question whether it is a deductible expense. People also forget that in a lot of cases the more money that is spent the more HMRC get in one way or another and it is not like you will be getting a 100% back anyway…

    • Genghis says:

      Because for CT purposes and self employed IT purposes the standard of whether an expense is allowable is “wholly and exclusively” whereas for employees there’s also the more difficult “necessary” test. As such, a ltd co could claim for the cost of an Economist sub but I couldn’t as an employee.

      They’d care because they’d be giving say 40% IT relief in exchange for say 21% CT charge (if they’re lucky and the corporate doesn’t move around profits; note flights are VAT zero rated).

      • Yes as an employee it would be slightly more difficult

      • Economist is not on the list of approved, i.e. tax deductible, subscriptions. Falls in the same category as suits which are not considered “uniform”

  7. Ummm – think you might ultimately be on shaking ground here, especially as an employee.

    You would need to argue that you knew better than your employer what was required. Your employer thought it was acceptable for you to travel in economy for business purposes but you unilaterally decided it was not. I’d view that as entirely optional.

    I think you might also find the tax man thinks it slightly odd if you’re claiming a deduction for travel expenses as an employee. It could definitely trigger some interest as well because it would not be the norm.

    • Joseph Heenan says:

      I’d say it’s relatively normal for employers not to cover some travel expenses. I’ve in the past claimed tax relief for mileage expenses for travelling to (irregular) meetings at an employer’s second site which the employer’s policy did not allow to be claimed through the expense system.

      (Of course if you claim £3K in travel expenses in a year that may draw some questions. The £300 example in the article I would imagine is unlikely to!)

    • The case of Fiona referenced in the article shows that HMRC do not take that stance.

    • Total nonsense, as per the guidance in the article.

  8. About 5 years ago, I flew to or from the US with BA a few times, upgrading from WT to WT+ at check in. The upgrade fee at the time was about £190. I didn’t receive additional Avios or TPs.

    Do these have to be claimed after the event?

    • Yes, with BA you get the higher TPs and Avios. You usually have to phone up and get it adjusted – paid airport upgrades rarely track properly. You can’t do it via the online claim form as the flight will have posted per the original booking so they will reject your claim if the system even allows you to submit it.

      If you take an online upgrade offer, that always tracks fine in my experience.

    • Per this article, you have 4 years from the end of the relevant tax year, so you may be ok.

      https://www.gov.uk/tax-relief-for-employees

      • I think Nick was asking about claming the extra Avios and TPs, the window for which is much shorter, not any potential tax relief.

  9. Frenske says:

    “The only downside is that you have to pay the £300 now and won’t get the benefit of the tax relief for a year or more.”
    Another big downside would be the need to do a self-assessment.

    • Agreed – I’ve taken a couple of £59 online upgrades – mostly to get tier points – and it’s not worth the hassle of kicking myself into self assessment.

      If you already have to do a SA return then you might as well include this sort of thing while you’re at it.

    • If you are making additional pension contributions, you need to do self assessment. If you have any savings interest – because tax is now paid gross – I imagine you need to complete a return even though the first £1k is tax free?

      • Genghis says:

        How much tax relief get on interest depends on which tax band you are: £1k for BRTPs, £500 for HRTPs and £0 for ARTPs. If over, officially, you need to tell HMRC to amend tax code at which employment income / pension income is provided / include in self assessment if already do one. If you are not otherwise required to do self assessment, requirement only kicks in at £10k interest income.

      • No, for simple cases they will just adjust your tax code

    • You don’t necessarily need to do a full self assessment. You could just submit a HMRC P87 form. Also, if your tax affairs are simple then a SA is pretty easy to do anyway.

      • Yes, I used to get the company accountant to do it until I realised how simple mine was.

        SA is one of the downsides of becoming a company director. Although I suspect the other people who were directors of the management company for the blocks of flats I lived in did not do one!

  10. Of course the BA app only ever offers these sort of last minute upgrades if travelling directly to/from London, yet another bit of BA IT that’s rubbish (I’m esp annoyed with them this morning after 3 747 UD sectors in 64K have all been swapped to 777!).

  11. joe green says:

    Related question:
    If my company needs to fly me for a meeting and the cash fare for economy is say £700 can I tell them I will book the flight myself use my 20,000 personal Avios and then claim an expense of £700 (or be generous £600 so they also gain from the situation)?

    If so would I now need to pay tax on the £700 as I have made a profit selling avios?

    • Genghis says:

      In my opinion, no. I’ve discussed this before. Points are outside the scope of tax for earnings purposes as they are considered a rebate. Individuals using avios earned from credit card sign ups / flying etc to then book a flight you would take for business purposes – with the company then expecting to make an allowable deduction and bring in scope for tax purposes – is dodgy. But I’m not a specialist tax accountant / HMRC inspector.

      • joe green says:

        Agreed that way it sounds a bit dodgy.

        But I think you can look at from a different angle. If you redeemed the Avios for a flight that happens to suit the business trips date. Then take that ticket to your company and say I will sell you this ticket for £600.
        Now it is easy to see the ticket has a value even though the Avios used to buy it didn’t. Once I am selling the company an airline ticket the means through which I purchased it become irrelevant surely?

        • Genghis says:

          In my opinion, no. Ask your company’s finance department and let us know how you get on.

        • BrotherBear says:

          The answer here is no.

          Had experience with Directors claiming the cash price of tickets they booked using Avios (earned via business travel and spend – not that it matters).

          The guidance is clear that you are only entitled to claim any cash outlay and cannot place a value on the points.

          Any cash paid in respect of the miles is taxable.

    • I doubt that would qualify as an expense since as you say you are basically selling avios to your company.

      Avios have a minimal value (0.01p or something) so the company would need to account for why it is paying £700 to you for something supposedly worth £2

      If you were actually trading Avios (which isn’t allowed by BA in the first place) as in you bought them for £300 and sold them for £600 I imagine the £300 profit would be classed as a capital gain of which you have 11k annual allowance

      • Genghis says:

        Theoretically, trading avios would be subject to income tax (if not incorporated) as that is the trade (according to different “badges of trade). Similarly. a day trader in shares would pay income tax as that is his/her trade. I would pay capital gains tax as trading shares is not my trade.

      • Surely they wouldn’t have to buy the flight off you, they just provide a travel allowance?

        While that will presumably complicate tax deductions etc., I can imagine many scenarios in which it will still be more profitable for both parties to do that even if it can’t be deducted for tax purposes at all. That being said, I know very little about this area!

      • Memesweeper says:

        You could buy fully flex, keep the receipt for the claim, cancel it, and fly on points. Your company lawyer may not agree with my approach, however, so best to clear this with your boss first. 🙂

    • RIccatti says:

      You need a proof of purchase for those 20,000 Avios.

      Otherwise, if acquired as a rebate via flying and credit card spending those Avios are out of the scope of taxation either way. They cannot reduce or increase anyone’s tax position — neither yours, nor your company/employer’s.

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