British Airways defeats HMRC in £5.8m Heathrow cabin crew tax dispute
British Airways has won a tax battle against HMRC over whether costs tied to cabin crew accommodation at London Heathrow Airport were subject to £5.8m in income tax and national insurance contributions.
Following an appeal in June, the Upper Tribunal ruled in favour of the airline on Monday, dismissing the tax authority’s claim and finding that the cost of accommodating cabin crew staff working back-to-back shifts between transatlantic flights at Heathrow was a deductible travel expense.
Mr Justice Rajah and Judge Ashley Greenbank said in their judgment that the airline providing accommodation at Heathrow Airport was “a necessary expense of travel” and therefore not a taxable employee benefit.
Tax partner at Moore Kingston Smith, Michelle Denny-West, said: “This ruling will be welcomed by employers in sectors where staff are subject to strict operational or regulatory requirements.
“The case highlights the willingness of the courts to take a practical, fact-based approach to the employee expenses rules – particularly where HMRC seeks to characterise genuine business costs as taxable benefits,” she added.
Accommodation for cabin crew a ‘necessarily incurred’ cost
In 2016, new aviation safety regulations made it mandatory for cabin crew to stay in hotels to rest between back-to-back flights.
The Tribunal found that, because of the updated aviation safety regulations, the accommodation fees were a “necessarily incurred” cost while travelling to meet performance standards tied to their employment duties, as the cabin crew used the accommodation to rest during their shifts.
However, HMRC had argued that the accommodation fell under the category of ‘general earnings’ for the cabin crew, claiming it should be subject to income tax deductions and national insurance contributions.
“When they [the cabin crew] are rostered on a B2B rotation, the entire rotation is the job. It is also the journey. The journey does not end because of a stopover in New York or because of a stopover in London Heathrow Airport. The job and the journey do not end until the rotation is completed,” the judges said.
When approached for a comment, an HMRC spokesperson said: “We note the Tribunal’s decision and are carefully considering the judgment.”
“We are pleased with the decision in this case and that the Upper Tribunal (Tax and Chancery Chamber) has found in favour of British Airways,” British Airways said when approached for comment.