Hotel costs "incurred on travelling in the performance of" employment

The Upper Tribunal has held that the cost of hotel accommodation provided by British Airways to flight crew between two legs of a “back-to-back” transatlantic rotation at Heathrow was deductible as a travel expense under ITEPA 2003 s.337: HMRC v British Airways PLC [2026] UKUT 366. The UT rejected HMRC’s arguments that the expenditure was not “in the performance” of the duties and simply to put the cabin crew in a position to perform their core or operational duties.

Background

BA provided cabin crew operating back-to-back (B2B) transatlantic rotations through London Heathrow with hotel accommodation. HMRC took the view that this benefit was earning of the employment and a taxable benefit provided by BA subject to NICs and income tax. BA argued that the expense of the accommodation was a deductible expense under the provisions of ITEPA 2003 ss.336 to 338. In particular, s.337 provides that “A deduction from earning is allowed for travel expenses if (a) the employee is obliged to incur and pay them as holder of the employment and (b) the expenses are necessarily incurred on travelling in the performance of the duties of employment”.

The FTT held in favour of BA that the duties of employment of the cabin crew extended throughout a rotation, such that the crew were performing duties throughout the period, notwithstanding the prescribed rest periods. On that basis, the FTT held that the cost of the accommodation was deductible under s.337 because the crew were travelling in the performance of their duties.

In the alternative, the FTT found that the expense was either deductible under s.338 because the accommodation constituted a “temporary workplace” where the cabin crew were obliged to take mandatory rest periods. In the further alternative, the FTT also found that the expense was deductible under section 336 ITEPA on the grounds that it was incurred wholly, exclusively and necessarily in the performance of the duties of employment of the cabin crew. HMRC appealed the FTT decision to the UT.

Decision of the UT

HMRC argued that the FTT had been wrong to find that the provision of accommodation was “in the performance of the duties” (in particular that periods of rest were part of that performance), that it was “on travelling”, and that it was “necessarily incurred”. HMRC had argued that the accommodation was to put the crew in position to perform their operational duties and not part of that duty. However, the FTT found that “the obligation of the cabin crew to stay at the LHR accommodation during a B2B rotation was a part of the job. The staff were obliged to act in accordance with the direction of BA and to meet the regulatory requirements. The regulatory requirements for a B2B rotation required that the cabin crew stayed at the LHR accommodation. If cabin crew did not stay at the LHR accommodation during a B2B rotation, they would be in breach of the regulations. For staff that were rostered on B2B flights, the job was the rotation. The obligation to stay at the accommodation was not a collateral requirement; it was not a personal or social obligation; it was not preparatory to performing the duties of employment. It was one of them.”

The UT has agreed with the FTT’s conclusions on this issue. In particular, the UT warned against over-reliance on labels such as “operational duties”, “intrinsic duties” and “collateral duties”. In this case, there was no relevant distinction between the provision of LHR accommodation and provision of accommodation when cabin crew are abroad. In both cases it is provided because they could not “go home”.

On the question whether the expenditure was “on travelling”, the UT stressed that the issue must be determined by reference to the underlying facts and not the treatment of Heathrow for regulatory purposes. However, the UT concluded that the whole rotation was “the job” and is also the journey. The journey did not end because of a stopover in New York or because of a stopover in Heathrow. The job and journey did not end until the rotation was completed. As such, the expenditure on hotel accommodation was “on travelling”.

Finally, the UT agreed with the FTT that the expenditure was “necessarily incurred”. Whilst it is not the case that every contractual obligation is a duty of the employment, once the duties of the employment have been determined, the question is simply whether “the duties impose the expense”. In this case, the UT held that, where the cabin crew have been rostered to fly a B2B rotation, the duties of the employment included the obligation to stay at the LHR accommodation. In those circumstances, the conclusion that the expenditure on the LHR accommodation was necessarily incurred in the performance of those duties must follow for the same reasons that lead to the conclusion that staying in the LHR accommodation was itself a necessary feature of the employment.

Comment

This decision provides a useful illustration of how the well-established "duties of employment" test for travel and subsistence deductions applies where an employer's own commercial and regulatory choices shape the scope of an employee's duties. The Tribunal confirmed that, whilst such terms such as "intrinsic", "core", "collateral" and "extracurricular" found in the case law are useful labels, they should not be treated as a separate legal test, and that the essential question remains simply whether the duties of the employment, properly identified, required the expenditure.