What happens when your business trip racks up air miles, then you use them for a family holiday?
Many UK businesses rely on corporate cards to manage expenses, and with them come loyalty rewards.
But when personal benefit creeps into the picture, HMRC might start paying attention.
(Read Time: Approx. 5 minutes)
Topics Discussed:
- HMRC’s stance on personal use of air miles earned through business spending
- Circumstances that could trigger tax liabilities or reporting obligations
When Air Miles Are a Byproduct, Not a Perk
HMRC has long held the position that air miles and other reward points earned on corporate cards during routine business transactions do not create a taxable benefit when employees later use them privately.
The key point is that these rewards arise “incidentally” from business expenditure, not as deliberate incentives or remuneration.
Because of this, there is no requirement for most businesses to report these points on a P11D form.
This position is widely accepted and followed across the UK corporate landscape.
The absence of tax or National Insurance Contributions (NICs) is a welcome simplification for employers and employees alike.
HMRC’s Employment Income Manual (EIM21615) supports this view, stating that incidental benefits from credit cards or loyalty schemes (where not specifically structured as rewards) do not constitute taxable earnings.
When Rewards Are Structured as Benefits in Kind
However, the waters can muddy when schemes are structured with intent.
If an employer enters into a card reward programme that explicitly promotes personal benefits for staff, HMRC may determine that this is a benefit in kind.
For instance, if an employer openly markets these air miles to employees as a perk of the job, the intention shifts.
HMRC can then assess the benefit as employment income.
While this scenario is uncommon, it’s not unheard of in sectors where staff travel frequently and where the line between personal and business incentives becomes blurred.
It’s the deliberate nature of the reward scheme, rather than its incidental outcome, that determines its tax treatment.
The Role of PAYE Settlement Agreements
Another potential complication arises when an employer chooses to settle an employee’s tax liability through a PAYE Settlement Agreement (PSA).
By doing so, the employer effectively acknowledges that a benefit has been conferred.
This can prompt HMRC to treat the air miles as taxable, shifting the entire tax treatment.
While PSAs are more commonly used for staff entertainment or gifts, they can be applied to loyalty schemes if a business uses them as a structured employee benefit.
It’s essential to remember that PSAs are voluntary and typically used for irregular or minor benefits.
When used for air miles, they imply intent, which shifts the default “no tax” position.
The Corporate Tax and VAT Position
From the company’s point of view, any value accrued through points or air miles does not constitute taxable income.
These loyalty benefits are not treated as commercial receipts, but simply as rewards for spending already accounted for as business expenditure.
Similarly, earning air miles does not impact a company’s VAT position.
The recovery of VAT on a purchase is dictated by whether the underlying expense is a legitimate business cost, not by whether it generates air miles.
However, care must be taken if the expenditure was mixed-use or if there’s a deliberate intention to use the rewards for personal benefit.
While the air miles themselves do not trigger a VAT liability, HMRC could challenge the VAT recovery on the underlying expense if it’s not wholly business-related.
Do You Need to Report Air Miles on a P11D?
For most employers, the answer remains a straightforward “no.”
When points or air miles are earned as a by-product of necessary business expenditure and used later by the employee, HMRC does not require these to be reported as benefits in kind.
This position simplifies reporting for companies and is particularly relevant in industries where frequent travel is common.
However, the rules are based on intentions and structure.
Should a business shift its approach and start promoting air miles as a staff benefit, the tax treatment would change accordingly.
What About Self-employed Individuals?
For sole traders or partners in a partnership, the position is more nuanced.
If air miles are earned on a business credit card and later used personally, HMRC could potentially take the view that a proportion of the business expense has provided personal benefit.
While no formal guidance has been published for sole traders, it would be prudent to restrict any claims for tax relief on card fees or annual charges proportionately, where personal rewards are being claimed.
Maintaining clear records is essential to demonstrate the primary purpose of the expenditure.
What About Rewards from Other Programmes?
This principle extends beyond air miles. Many loyalty schemes, such as hotel rewards, supermarket points, or cashback offers, can fall under the same umbrella.
If they arise from business expenditure and are not marketed as incentives, they’re unlikely to be taxable.
But again, structure matters. If these schemes are used strategically as a form of employee remuneration, they can fall within HMRC’s radar.
Summary
Air miles and reward points can be a valuable bonus of using business credit cards, but it’s crucial to understand how HMRC views their use.
When these benefits are incidental to business spending, there is no tax or reporting obligation.
However, when structured as deliberate perks, or when tax is paid on them under a PSA, the treatment changes.
Getting the structure right from the outset is essential to avoid unintended tax consequences.
If you’re unsure whether your current use of loyalty schemes could raise red flags with HMRC, we can help.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
