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

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As it’s a quiet Bank Holiday weekend, with no major loyalty news, I thought I’d update this article which originally appeared two years ago.  It provoked some very interesting discussion at the time.

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.

The same applies to trains, of course, and is getting more common now with apps such as Seatfrog allowing you to bid for last minute upgrades.

These deals can be good value, especially with airlines where you may 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 this taxation.co.uk article, the answer is ‘Yes’.

(Unfortunately, you need to register with the website in order to see the full discussion.)

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.

The only potential snag for employees (not the self employed, who have different rules) is that the expense must be “wholly, exclusively and necessarily” for the performance of your roleThis does not appear to be a problem when upgrading travel, and it is easy to argue that the extra space and comfort is necessary for business reasons.

If you look at page 35 of the Inland Revenue guide to employee travel (PDF), the example of Fiona appears to confirm this policy.

It is perhaps less clear-cut that you could upgrade your hotel room for cash and claim back the difference, although it would presumably be easy to claim that you needed a bigger desk / space to meet a colleague etc.  The Inland Revenue guide makes it very clear that there is no requirement to take the cheapest possible option when travelling.  This applies to both the mode of travel (you can claim the full cost for rail travel even if a bus is cheaper) or class of travel (First Class travel is allowable).

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.  You would also need to submit a self-assessment form, if you don’t already, or a P87 form.  This is the same form you use to, for example, reclaim cycle depreciation or motoring costs if you travel to meetings and cannot reclaim the cost from your employer.

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. Louie says:

    Picky I know, but HMRC haven’t been the Inland Revenue for more than 15 years…..

  2. Hmm. I’m really not convinced.

    I am a doctor, and I tried claiming a stethoscope once. They rejected it and demanded I get a letter from my employer stating I needed a stethoscope for my employment, that the employer didn’t provide one, and without it I would be unable to do my employment. As a matter of principle I went through the rigamarole of getting a letter, and indeed about 6 months after resubmitting it they finally gave me the ~£60 cash.

    I just can’t see upgrades meeting the same definition: that you NEED them for work, and without them you cannot perform your duties and would lose your job.

    If you’re self-employed it’s a different matter as the rules are different.

    • Andrew says:

      There are lots of Doctors who don’t need a Stethoscope… Physics, Law…

      But the rules are very clear indeed. You evidence then can claim for a replacement. It’s why the trainees get themselves a cheap model “lose it” then get a 100% rebate on one of the beautiful digital Littman 3200 series that the rest of the team use.

      • I don’t know where this idea that only replacements can be claimed. My accountant is adamant if you only use it for work, and it is required, you can claim from new (and a quick google seems to back this up). You only get your tax rate back, usually 40%.
        You are talking about self-employed expenses.

      • Pat the Postie says:

        What you said makes no sense

    • Jonathan says:

      I’m also a doctor & have been through this rigmarole over expenses for conferences. Most trusts now have a pathetic annual budget for CPD of £600-800 which barely covers conference fees let alone travel & hotels. If you claim for the deficit on your tax return then HMRC will décline & there are numerous cases that have gone through tax tribunals & even up to Supreme Court that have vindicated their position.

      HMRC’s position is that whilst a set number of external CPD hours is necessary to maintain your medical registration the cost of this is not wholly, exclusively & necessarily related to your employment as it is a requirement of being a licensed medical practitioner in general not eg. a consultant surgeon at X hospital. Now if you are reimbursed fully by your trust it’s ok & if you are a locum set up as Ltd. company etc then it’s an allowable business expense but as a PAYE employee claiming a shortfall you’re out of luck.

      I can’t see in any way that claiming an upgrade would wash but compulsory CPD doesn’t. You’d probably get away with it for a while if you lumped it in with other allowable expenses on your tax return but if/when it was queried you’d be on a sticky wicket.

      • The Savage Squirrel says:

        Jonathon, worth one bit of self employed work per year and then filling a tax return?

    • Alex W says:

      It might be less admin to fill out a full tax return than to claim back on a P87 (unless you get audited).

    • Only cardiologists and medical students need stethoscopes, the rest borrow them

    • Lady London says:

      just curious…how would medical employers hire a doctor and not provide a stethoscope? was it pro bono / charity / MSF ?

      • Andrew says:

        There’s always a parent, maiden aunt or granny who’ll buy a med student their first stethoscope. After that it’s 100% tax deductible.

        Besides, you do realise that they into your ears very firmly indeed? They don’t just rest in like cheap airline headphones, they scissor clamp onto your head and push in.

        Then all the wax pushes into them. *gag*

      • Jonathan says:

        It’s always been expected that a doctor provides their own. I definitely prefer it this way as some hospitals are now moving to an individual stethoscope per bedspace in ICU’s for infection control reasons. The issue is they’re useless (cost £5 vs £70 for a basic Litmann model that most would consider as a minimum) & I can never hear anything with them.

        • Bonglim says:

          Easy for GP partners and anyone who does private work. If you do ANY private work at all then it is a legitimate expense.

          I would say (and so would HMRC) that a cremation form is private work. So as long as that makes it on to your tax return (ahem) then you can claim your stethoscope. You do need a stethoscope to confirm death.

  3. Sandgrounder says:

    This is the manual used by HMRC compliance officers when working cases:

    https://www.gov.uk/hmrc-internal-manuals/employment-income-manual

    This point is a guiding principle:

    https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim31640

    “the test is an objective one. It looks at the requirements of the job itself rather than the circumstances or preferences of any particular individual doing it.

    It follows that an expense is only deductible if it is an expense that each and every holder of that employment would have to incur. The courts have consistently supported this approach in a series of decided cases.*

    There is plenty of case law, if you could purchase luxury items whilst travelling and throw them on your return, where would it all end? “I needed a diamond encrusted eye mask to sleep on the flight” “I needed half a pound of caviar for lunch, I am from Kensington and diagnosed caviar-dependent”. The principle above always applies. An expense needs to be necessary, unavoidable and not down to preference to be allowable. You have choice over exactly how you travel and what you eat when travelling wholly and exclusively for business, but could you argue successfully in court that the cost of your upgrade would need to be incurred by each and every holder of the employment? As always, DYOR, consider taking professional advice, and proceed at your own risk!

    • Well put, very clear.
      Putting this on your tax return is an invitation to be investigated.

    • Here is the key issue though: If an upgrade paid by an employee is not tax deductable then surely an upgrade (beyond economy) paid by an employer is a taxable benefit?

      In reality, only about 0.1% of tax returns are ever looked at, so you have a 99.9% chance of your claim being accepted.

      • Genghis says:

        No. See my post below. I don’t think HfP should be straying into tax advice if there’s a lack of knowledge on the matter.

        • George says:

          @Genghis Some of us like to hear what Rob has to say on travel/points related tax matters. He probably has a better insight on the subject than many accountants who may have no understanding of the points/travel business. But you are entirely free not to read what he has to say if you don’t think he should comment on tax matters, just don’t suggest ruining it for the rest of us.

          • Genghis says:

            I should ask for my subscription fees back, hey? Challenging Rob when he’s not quite correct only adds to the value of the site, IMO.

          • TGLoyalty says:

            You need both points of view to decide what’s best.

            Tbh I just read the post saying it took a year of back and forth to get back the tax from £700 upgrade so about £280. Life’s too short I’ll just sit wherever my company has decided and If I decide to upgrade that’s my choice.

      • Sandgrounder says:

        Different rules apply to employees and businesses. If a business offers premium class travel as part of its policy, this is fine. Upgraded business travel could become a taxable benefit in certain situations, for example a luxury hotel or flight is provided as a reward. Also, if you were to go on a trip and it is not wholly and exclusively for business, for example you ask them to tag a week on before the return and you take leave after a legitimate stay for a business meeting, the whole cost can become a taxable benefit.

      • Pat the Postie says:

        Yep and with the current situation probably 0.01

  4. Has anyone actually tried and been successful with this? Most companies pay for PE on long-haul flights for internal meetings/conferences etc. Could you really upgrade to business and then claim tax back on the upgrade cost?

    • Would love to see your source for most employers paying PE long haul 😁

    • I have done it twice and both times it was accepted by HMRC. My employer’s standard policy is all J for flights >4 hours other than internal (i.e. non-client) business which is strictly Y. I believe that this is relatively standard these days (at least in the City).

      In my case, I personally paid for flight upgrades for an internal business meeting (from Y to J) and an internal business trip (from Y to PEY) and claimed both sets of upgrade costs (as well as associated change fees) and was ultimately successful. To be clear, the underlying Y fair was paid directly by my employer.

      In my experience, it depends on quantum and the method by which you claim. For the internal business meeting (a flight from UK to Germany, so a relatively small amount), this was claimed via my usual self assessment return and was accepted without further investigation. However, for the other business trip (which was UK to Asia, so c. £700 in costs and fees), this had to be done by way of submitting a P87 form (take advice on which form you should use). This resulted in drawn out correspondence from HMRC as they initially rejected the claim. I was required to provide a not insubstantial amount of evidence (including a confirmation letter from my employer, summarising the company’s travel policy and credit card receipts/email confirmations/travel agency invoices), albeit it was ultimately accepted after I appealed and one year of back-and-forth written correspondence. I suspect that it also helps that my employer usually deems flights >4 hours as justifying J travel and it was just on cost grounds that they refused to let me fly in J for my trip to Asia, but ultimately they did accept that there was a business justification for my upgrading my flights (albeit at my personal expense).

      • I should add that the upshot of this is (as with most things tax related): (a) seek your own tax advice as all circumstances differ (for the record, I did seek tax advice on the point); (b) only claim if it was for legitimate business purposes and in respect of a business trip (HMRC strictly interpret the “wholly, exclusively and necessary” requirement Rob mentions above); and (c) be prepared to provide voluminous information to justify your claim.

        Without written evidence (particularly an employer to back you up), you are really going out on a limb and may not be justified as you don’t want a black mark against your name with HMRC. Remember that you are only getting tax relief at your marginal rate (for most people, either 20% or 40%) and NOT the whole amount that you paid. Going through this process may not result in a better outcome for you once you have factored in the time, expense and frustration of dealing with HMRC!

  5. ChrisC says:

    Surely if your business class flight is so essential for your work then your employer should be paying for it??

    • Mr(s) Entitled says:

      This seems to be the crux of it. If your employer does not consider it necessary how can an employee argue otherwise. Seems like an easy win for HMRC.

    • memesweeper says:

      Sadly many don’t.

    • Try telling this to teachers who have to buy stationery for their classrooms… doctors who have to pay their own membership to the medical body they are required to be a member of…

      • GMC and royal college fees are claimable though

        Most doctors have likely evaded tax on crem forms when they were new graduates, so it kind of evens out

        • Jonathan says:

          I’ve never really understood how fees for Royal Colleges are allowable but CPD not, I get far more benefit from attending a conference than a monthly journal that I can access online for free via my trust.

          • Jonathan says:

            Not sure the crem form game applies anymore either. Most trusts put it through payroll or keep it themselves these days & they take much longer to complete than previously, I’d happily let someone else do it these days.

          • As I said understand it, CPD is now allowable now there is a requirement to do it for revalidation, and as long as it fulfils some criteria.
            If you tried to claim >4 years ago, I would revisit this now the regulatory requirements have changed.
            A quick google throws up several accountants websites aimed at doctors all suggesting you can claim:
            https://lansdellrose.co.uk/blog/tax-relief-training-cpd/

    • HMRC makes clear that you can claim for any class of travel. In my banking days I had an ‘all J’ policy (including flying business class to Paris at times) and £300 per night hotel allowance (over £400 now with inflation).

      • Genghis says:

        But this was either:
        – paid for by the bank in your capacity as an employee in which case the test is “wholly and exclusively”
        Or
        – paid for by the bank in your role as a partner, depending on the legal structure of the entity, in which case you’re also carrying out a “trade” and the test is “wholly and exclusively”.

        @Sandgrounder’s post is excellent. The “necessary” test as an employee claiming against IT is a high one. I’m not convinced tbh. Even HMRC guidance isn’t law.

        • FloriGuy says:

          Correct. The difference for employee paid expenses is the “necessary” requirement.

      • The Savage Squirrel says:

        Your employer considering business class travel necessary and then reimbursing you is clearly a very different and infinitely stronger position vs an HMRC challenge compared to your employer explicitly stating that it is not necessary.

      • Lady London says:

        £400 per night for hotel is a bit miserable for investment bankers in any major European capital isn’t it ?

        • I did ok. A fair percentage of my trips were Dusseldorf anyway!

          • Concerto says:

            Heavens, then you know the beer halls of Düsseldorf! Some nice beer sorts there, such as Altbier.

        • Jonathan says:

          Maybe if the allowance was a bit more mainstream some of the travel wouldn’t be seen as so important! Never really understood the way investment bankers justify their exorbitant fees, it’s not exactly wealth creation in the sense that manufacturing is more a tax on genuine enterprise.

          • Lady London says:

            Approving investment bankers expenses was enlightening and often very entertaining when I did it. Who knew how many bottles of £550+ Petrus had to be consumed by a very small number of people at a relatively ordinary bit of entertaining? How do you classify a receipt for dinner for £400 (1 person) that’s all in Chinese except for the words “Madam Fifi’s” ?

            There’s a whole set of rules and cultures around that – kinda casino culture.

          • TGLoyalty says:

            Haha Chinese tax receipt pronounced “fappiao” it could be for anything as it just said a total and the establishment but was what we needed for company expenses.

          • @LL “How do you classify a receipt for dinner for £400 (1 person) that’s all in Chinese except for the words “Madam Fifi’s” ?”

            That’s very easy, that is entertainment. The employee should be paying tax on that.

        • The Savage Squirrel says:

          “£400 per night for hotel is a bit miserable for investment bankers in any major European capital isn’t it ?”

          Yes, my God,they may have to miss the Savoy and stay at some midrange hellhole like the Langham. The horror! 😀 😀

  6. Something I have also thought about in the past. At my place of work class of travel is related to you job ‘band’. I used to regularly travel business, however my band moved to being eligible for economy, and by exception premium. However the next band up is still able to travel business, so if I travel with my manager we travel different classes for the same purpose.

  7. Lostantipod says:

    Maybe all you doctors need to get higher up the chain of medical bureaucracy. My wife worked at the MHRA a while back and couldn’t understand how the NHS had funding issues when the senior consultants were swanning around the world in first class. ( And trying to claim their new set of luggage on expenses…true story). Still, if the government is willing to pay for first class, It would be hypocritical to argue against deductions for the rest of us plebs …..;)

    • Jonathan says:

      Strictly speaking our T&C’s allow 1st Class rail travel as a consultant (equally they specify hotel expenses up to £75/night) but these days most trusts just give a flat rate budget for the year. Overseas travel has never been paid but you can claim for conference fees/accommodation for overseas conferences.

      It was common to get flights etc. “sponsored” by pharmaceutical firms but those days are long gone, the limit for gifts from a rep these days is about £2.50 which just about covers a sandwich.

    • Harry T says:

      I think the UK is well past the “glory days” for doctor and travel, particularly now Big Pharma isn’t given free rein to bribe everyone with lavish holidays. I spend a lot of time with senior consultants and none of them seem to benefit from travel in this manner on the NHS dime. Academic medicine with a university budget is another matter, I imagine.

      • Lady London says:

        Pharmas (amongst others) do a lot of sponsoring of projects done at universities so there is probably still scope for various expenses to be funded “by the project”.

        • Paul74 says:

          Indeed, quite possibly, although Govt/Research Council/charity funded research projects are going to be economy.

  8. It would be interesting to see the HMRC senior staff travel policy

    • Lady London says:

      wouldn’t it just 🙂

      • My mum is a senior manager at HMRC, with a policy now of ‘all economy, everywhere, for everything’. It’s only a handful of Directors who have higher, and even then they have to justify it each time.

        It changed about 10 years ago – before that it was 1st on the train and business flying longhaul, economy shorthaul.

        Needless to say it caused a bit of a ruckus because all FCO staff have a Full-J policy everywhere and can choose their airline without it necessarily having to be the cheapest, but this policy somehow gets lost in translation when other govt departments are concerned.

  9. George says:

    We buy all our business class flights for work related travel with purchased points, for two owner directors and various employees. We charge to our company the cost of those points plus the fees and taxes we had to pay. We save a bundle by doing that. I’m certainly prepared to defend the practice if challenged by HMRC and to point out to them that our Corporation Tax bill would have been much lower if we’d spent three times the price on cash tickets.

  10. I do not have a problem with people personally paying for upgrades on their business flights and then attempting to claim tax relief.

    But I personally would not do it. I think it is hard to justify that it’s “wholly and necessarily in the performance of your duties”. Especially if your company’s travel policy is not to travel in business class.

    You are also personally benefitting from the extra Avios earned unless you can show that you are using those Avios to subsequently pay for travel in the course of your employers business.

    If you want to upgrade that is your choice. It is not necessary to do so. If your employer doesn’t deem it necessary then I fail to see how you could justify it to HMRC.

  11. James says:

    The distinction here (and I believe the flaw in Rob’s logic) comes down to there being a set of expenses that a business can legitimately offer to staff that are not treated as taxable benefits but that staff can’t claim tax relief for. For example, taxis from home to the office, coffee and food at work etc My interpretation of the tax rules would be that business (and first class) flights are in this category.

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