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Travel to directors funeral in NZ - allowable?

Founding director buried overseas - are travel costs for the current director allowable?

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My ltd client had 2 founding directors, one of whom emigrated to NZ in December 11 - he still worked on company business remotely and came to the uk for 4-6 weeks each year for work purposes.

In late 2016, he received a terminal diagnosis as a resultof a brain tumour and he sold his equity stake In March 2017, but continued to be a director and work whilst his health permitted. He died at home in NZ in September 2017.

The other founding director attended the funeral to give an eulogy and moreover to represent the staff and many clients that could not attend - the director bought first class tickets so as to reduce the jet lag issues upon his return to the UK following a short 6 day roundtrip to NZ and back.

My query is whether the costs of this trip can be deemed "wholly and exclusive" for the trade and thus allowed as a deduction for tax purposes - thoughts would be appreciated.

Many thanks

David

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By Accountant A
13th Dec 2018 10:37

Can't see any business purpose.

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Replying to Accountant A:
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By lionofludesch
13th Dec 2018 11:38

Me neither.

You don't make much of a case for how it will benefit the business. "Wholly and exclusively" - is there no personal interest in the director's visit ? Were they not mates ?

Tough questions - but they're what HMRC will be asking.

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By SXGuy
13th Dec 2018 11:39

So someone who's no longer a director died, and you want to know if a 1st class trip to the other side of the world is wholely and exclusively related to the business?

I don't even think I need to answer that one. But nice touch adding the bit about reducing jet lag, I'm sure the company appreciated it. Hmrc on the other hand, probably couldnt care less.

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Replying to SXGuy:
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By sumo69
13th Dec 2018 13:16

Actually he was still a director until death, and continued to work until his condition became so bad that this was no longer possible (about 4 months pre death).

The upgraded air travel allowed the UK director to minimise the work impact, both for days in NZ and upon his return.

D

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By Justin Bryant
13th Dec 2018 11:57

I would have grave concerns about this.

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Replying to Justin Bryant:
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By Vile Nortin Naipaan
13th Dec 2018 12:28

I think they should be put asunder Justin.

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By Vile Nortin Naipaan
13th Dec 2018 12:27

Hello pigeons, cat here. I think it's allowable. Where's the duality? It's a company, and the payment isn't for any private purpose of the company.

Obviously the director that travelled potentially has a benefit in kind, unless he travelled in performance of his duties. A suitable board minute might cover that aspect.

The travel by first class is an irrelevance.

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Replying to Vile Nortin Naipaan:
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By Accountant A
14th Dec 2018 15:23

Vile Nortin Naipaan wrote:

Obviously the director that travelled potentially has a benefit in kind, unless he travelled in performance of his duties. A suitable board minute might cover that aspect.

Can you expand, VNN? Surely the board saying "you are required to attend a funeral in NZ" isn't adequate to make the costs non-taxable travel expenses? Ta

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Replying to Accountant A:
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By Vile Nortin Naipaan
17th Dec 2018 11:32

Let's forget he was a director for a minute. The board have a meeting, at which the unfortunate death (from something horrible) of a long-standing former employee is discussed. It is agreed that one of the directors should attend the funeral, and Dave, it's going to be you.

The directors have a duty to promote the best interests of the company, and it will have a positive effect on the current employees to now that, following the death of a long-standing former employee, one of the directors got off their fuching [***], and flew half-way round the world, just to pay respects on behalf of both himself and the company.

Now tell me you think it's taxable.

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Replying to Vile Nortin Naipaan:
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By emanresu
17th Dec 2018 12:18

Not even remotely convincing.

As for the staff, I'd suspect that they might feel that about £6,000 of the expenses should have been given to Brain Tumour Research and/or the hospice movement rather than on an indulgent upgrading to the most expensive seat on the aeroplane.

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Replying to Vile Nortin Naipaan:
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By cathygrimmer
19th Dec 2018 18:25

I agree - it wasn't exactly a voluntary holiday!

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By WhichTyler
13th Dec 2018 12:56

Not a technical anwer I know, but it sticks in the craw when someone's early thought on the death of a friend/colleague is ' I'll be able to put this through on exes though, won't I'?

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By sumo69
13th Dec 2018 13:20

Thanks to those who have posted constructively.

To those that are having a joke, you may want to know that he was a long standing friend of mine as well and died after a horrid brain tumour at 54 with 2 teenage daughters and a wife left behind.

So please dont bother posting unless you have some opinion on the issue I asked - it's offensive and hurtful.

David

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Replying to sumo69:
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By emanresu
13th Dec 2018 17:05

Then,

Technically, No

Morally, No

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By Tax Dragon
15th Dec 2018 01:45

Be honest. Would the second director have attended had this happened after retirement?

If so (and I'd venture it is so), the reason for going is friendship not employment.

So, as ever when a director-shareholder (I'm guessing) puts what is really a private expense through the company, you have three options: deduct the expense and tax the benefit; disallow the expense and tax the distribution; DLA.

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
17th Dec 2018 11:33

I don't necessarily agree. See above.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
19th Dec 2018 07:13

I take your point but some principles don't scale down to one-director companies. I think this is likely one of those times.

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By sumo69
19th Dec 2018 16:42

There were actually 4 directors at the time of his death - so 3 others that were active in the company and 1 represented both them, staff and clients.

Does that alter your opinion?

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Replying to sumo69:
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By Tax Dragon
20th Dec 2018 07:07

sumo69 wrote:

Does that alter your opinion?

That's aimed at me, I guess, since 'twas I that mentioned the number of directors.

It alters the way I phrase my question - and adds a new one. Be honest, had the surviving founding director retired before the funeral (you hint that he has retired since), would the company have sent one of the non-founding directors? Would the (retired) founder have gone anyway?

BTW, those are questions, not opinions. Whether, and to what extent, they are relevant is hard to know. At the least, I would say they counter - nay, outweigh -
cathygrimmer's point, if you were swayed by that.

But think about Vile's comments. And ignore confusion in other replies (apologies if I have inferred more than there is) between allowability for the company (not in question - unless the payment is a distribution) and the director's personal tax position.

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
20th Dec 2018 12:40

I believe that we agree that anybody that says it isn't an allowable expense is talking out of their [***], unless there is a benefit that has been received by the director by reason of their shareholding and not by reason of their emplyment, which is highly unlikely.

I think that you may then be playing down Cathy's point too much though.

The starting point is to ascertain how it is taxable; is it earnings within s 62 (no), being money or money's worth that constitutes an emolument of the employment, is it the reimbursement of expenses within s 70, or is it a benefit within s 201.

Assuming the company incurred the expenses, such that s 201 is then in point, the next question to ask is whether or not there is a benefit. There may be, to a certain extent, but before we go taxing anything, we need apply s 204 (and Pepper v Hart) and apportion the costs between the cost attributable to the benefit, and the cost attributable to other matters (the company's desire to have a representative present at the funeral of a long-standing former director, and frankly (Cathy's point), flying 12 hours each way to spend perhaps a day there, isn't much of a benefit.

If there is then anything to be taxed under s 201 or s 70, we then need to apply s 337 or s 338 (and, in either case, s 365, if relevant). And here, my board minute point addresses the fact that it would not be difficult to render the funeral attendance a duty of the director's employment.

And I restate, for the benefit of others, that the added cost of flying first class is a complete irrelevance. Once the expense is necessary by its nature, the quantum of the expense does not matter. RTFM.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
20th Dec 2018 18:29

Vile Nortin Naipaan wrote:

I believe that we agree...

S54 CTA 09 seems to be a point of constant confusion in Any Answers contributors' minds. Folk could do with reading HMRC's own commentary on it, if nothing else.

Is your interpretation of s204 (and related application of Pepper v Hart) a generally acknowledged view, or just yours, do you know? [I hope the OP duly noted the steps you took to get to that point, by the way. This part of the discussion could be irrelevant if that facts were different.] I am aware of Westcott v Bryan but unclear that there would be an apportionment in the instant case.

And, if you say I downplay Cathy's point, I say you ignore my question altogether. The benefit is not a holiday in NZ (IIRC 6 days was mentioned somewhere). The benefit is that a cost that the surviving founder would have incurred personally (out of respect for/friendship with his cofounder) has been paid by the company. EVEN IF (and this was not the case) the plane flew straight to the ceremony/service/other and flew straight from the wake/other, the benefit is the same.

What I find curious about you is that you say you will disallow an expense if you can discern a non-business purpose - "there just has to be one, even if subconscious" - yet you are happy to hint at backdating BMs or what have you to support any argument (as here) that ignores - or at least fails to question - the real motives of the persons involved. And it's those motives that my questions (which the OP has declined to answer) are intended to reveal.

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By emanresu
19th Dec 2018 17:07

David,

Any answers is, with the exception of the Time Out section, a technical forum where accountancy professionals share experiences, knowledge and opinions, and provide links to data that may be pertinent.

You've gone further. You've written extensively about friendship, about the nature of a brain tumour, the age of the deceased and the dependants left behind.

I wonder why you've brought this extra information to a technical web-site?

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Replying to emanresu:
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By sumo69
19th Dec 2018 22:33

Mainly to stop those that decided 1 line quips were an appropriate response to what was a tragedy -they didn't seem very technical either by the way.

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Replying to sumo69:
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By Vile Nortin Naipaan
20th Dec 2018 12:42

The omission of the technical detail does not, necessarily, render some of the responses that you've had not "very technical".

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Replying to Vile Nortin Naipaan:
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By sumo69
20th Dec 2018 16:14

Agreed, some have been both informative and useful, particularly yours - thank you.

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