When employees travel for work, they often incur small incidental personal expenses like newspapers, laundry, or phone calls in addition to the main travel and accommodation costs covered by their employer.

Most limited companies have policies around reimbursing reasonable work-related expenses, but often, these small incidental costs fall through the cracks, leaving employees to cover them personally.

However, there is an interesting and little-known tax exemption that enables employers to reimburse employees for minor incidental expenses related to work trips without creating extra tax liability for either party.

In this article we'll explain exactly how the incidental overnight expenses exemption works, examine the rules around acceptable limits and explain two easy methods companies can use to take advantage of it.

We'll also touch on some practical implications and limitations and how to handle scenarios like additional hotel services outside of basic room rates. Read on to find out how your organisation could start reimbursing certain employee expenses in a tax-efficient way.

The basics

Firstly, let's cover some background on work-related expense reimbursement. Generally speaking, for an employer to reimburse an employee expense tax-free, the cost must have been incurred "wholly, exclusively and necessarily" in the performance of their job duties. Any expenditure that contains a personal element or private benefit to the employee would usually be considered a taxable "emolument" or benefit.

This understandably creates difficulties in situations like overnight business trips, where some level of personal expenditure is inevitable and separating it precisely from genuine business costs can be practically impossible. To help address this, tax legislation contains a specific exemption that allows employers to reimburse employees for minor incidental personal expenses incurred while staying away overnight for work without either party facing a tax charge or reporting liability.

The technical rules

The technical name for this exemption is the "incidental overnight expenses" rule. Eligible expenses under it include things like newspapers, laundry expenses, or personal phone calls - small incidental costs where receipts may not be available. The key requirements around the exemption are:

  • It applies for overnight stays only, not day trips.
  • The employer must actively reimburse the expense. If left for the employee to cover personally, the relief can't be claimed.
  • There are fixed overnight allowance rates of £5 per night for domestic UK trips and £10 per night for overseas trips. This covers total incidental costs for the duration of the whole trip.


  • If a payment exceeds these set allowance rates, the whole amount becomes taxable, not just the excess.

The exemption only applies to employees. Company directors can use it if also employed, but self-employed contractors cannot access the relief.

Two easy methods for employers

Keeping those parameters in mind, there are two straightforward ways companies can utilise the overnight exemption to benefit their staff:

Set an internal policy that if an employee's total incidental costs exceed the £5/£10 limits, they must reimburse the company for any excess amount personally. This resets the full reimbursement figure back within the bounds of the tax exemption.

Pay a standard £5 or £10 per night allowance regardless of actual spend. If the employee doesn't use it all on incidentals, they don't have to repay it, and no tax is payable. Equally, no receipts or evidence of expenditure are required from the employee to justify the amount.

Method Two's simplicity and ease make it particularly attractive to employers. It allows them to provide employees with a contribution towards minor incidental costs without needing to implement cumbersome tracking or repayment procedures.

Practical implications

Here are a few further points to consider regarding the incidental overnight allowance:

  1. Employers can apply to HMRC to agree to higher "bespoke" rates for their specific company if they believe £5/£10 is insufficient based on typical employee expenditure. However, evidence must be provided on why a higher amount is considered reasonable.
  2. Where the company directly pays for additional facilities like pay TV or gym access, these constitute an employee benefit and remain fully taxable in the normal way. The exemption only covers minor incidental amounts.
  3. While hotel services bundled into the room rate and not separately invoiced (e.g. breakfasts) do not create any tax liability, care must be taken over add-ons like hotel bar bills, which would be taxable benefits.
  4. The allowance relates to employee expenses only. Self-employed contractors cannot access the relief, while directors can if they are salaried company employees but not in their capacity as office holders.

A tax-efficient expense perk

In summary, the incidental overnight expenses exemption presents a straightforward route for companies to contribute to the minor personal costs their employees may incur while staying over somewhere on business. Without creating any additional tax bureaucracy or paperwork compared to normal expense processes, they can provide a per-night allowance that offers a tangible, if small, perk of the job.

Given how broadly framed the rules are around what constitutes an allowable expense, employers can implement this with minimum fuss or compliance burden. Especially when using the simple flat allowance rates, it's a tax-efficient way to help employees with real out-of-pocket costs associated with business travel and demonstrate company caring into the bargain.