In HMRC v British Airways Plc [2026] UKUT 00366, the Upper Tribunal found that hotel accommodation provided by British Airways Plc to cabin crew during back-to-back transatlantic rotations qualified for relief as deductible travel expenses under s.337 ITEPA 2003. The dispute centred on whether accommodation provided near Heathrow between flights was a taxable benefit or a deductible employment expense.
British Airways Plc (BA) operated Back-to-Back (B2B) long-haul rotations from the 1990s until 2020, mainly for North American and Caribbean routes. A typical rotation involved:
- A flight from Heathrow to New York.
- An overnight stay overseas.
- A return flight to Heathrow.
- A rest period in hotel accommodation near Heathrow.
- A second outbound return trip.
Before February 2016, cabin crew could choose whether to use the Heathrow accommodation. BA treated it as a Taxable benefit, as it was not necessarily incurred in connection with the employees' employment.
- Following the introduction of the European Aviation Safety Agency (EASA) flight time limitation rules in 2016, BA could only continue to operate B2B rotations using reduced rest periods if suitable accommodation was provided and used by crew during the Heathrow stopover.
- BA amended its operational procedures, collective agreements and guidance to make use of the accommodation mandatory for crew rostered onto B2B rotations. Compliance was monitored and breaches could result in disciplinary action.
- HMRC accepted that accommodation provided during the overseas stopovers qualified for relief as travel expenses under s.337 ITEPA 2003. However, they argued that the Heathrow accommodation was different because it was provided at the crew's home base and therefore represented a taxable benefit.
- HMRC issued a Class 1A National Insurance Contributions (NICs) determination of £555,917 for the 2018-19 tax year. Under a settlement agreement between the parties, the outcome of any appeal would determine the treatment of accommodation provided between 6 April 2016 and 5 April 2020, with approximately £5.78 million of tax and NICs at stake.
- BA appealed to the First Tier Tribunal (FTT), arguing that the accommodation costs would have been deductible under sections 336, 337 or 338 ITEPA 2003 if incurred by employees directly.
The FTT found that:
- The duties of the cabin crew's employment extended throughout the entire B2B rotation. The FTT considered that employees were performing their duties of employment from the start of the rotation until they were released after the final flight.
- The Heathrow accommodation was effectively indistinguishable from accommodation provided during overseas stopovers.
- As a result, the FTT concluded that the accommodation costs were deductible under s.337 as travel expenses that were necessarily incurred in the performance of employment duties throughout the B2B rotation.
- The FTT also found that relief would have been available under s.338 because the accommodation constituted a 'Temporary workplace', and s.336 on the ground that the expenses were incurred wholly, exclusively and necessarily in performing employment duties.
- BA also argued that the accommodation was excluded from Income Tax and NICs under s.99 ITEPA 2003 because it was necessary for the proper performance of the cabin crew's duties.
- The FTT rejected this argument because cabin crew did not 'reside' in the hotel accommodation.
The FTT allowed BA's appeal. HMRC then appealed to the Upper Tribunal (UT).
The UT found that:
- The obligation to stay in the Heathrow accommodation formed part of the cabin crew's employment duties once they had been rostered onto a B2B rotation. It was not merely preparatory to those duties and was not a personal choice.
- Although employment duties are not defined solely by contractual obligations, the requirement to stay in the accommodation was an intrinsic part of the role when undertaking a B2B rotation. It was neither collateral nor extracurricular.
- The accommodation requirement arose directly from the way BA organised and operated B2B rotations within the aviation regulatory framework. Accordingly, it formed part of the job itself.
- The UT disagreed with the FTT's reasoning on the question of whether the expense was incurred on 'travelling'. It held that the FTT had incorrectly relied on aviation regulations that treated Heathrow as a 'slip station' for operational purposes.
- However, the UT considered that this error was not material. Looking at all the facts, it concluded that the cabin crew were travelling throughout the entire B2B rotation. The journey did not end when they returned to Heathrow between flights and only concluded when the full rotation was completed.
- The expression 'home base' was a regulatory concept used to determine flight-time limitations and rest requirements. It did not mean that Heathrow was equivalent to the employee's home.
- The accommodation costs were necessarily incurred because the duties of the employment required crew to stay at the hotel to complete the B2B rotation.
- HMRC's argument that BA had chosen, commercially, to operate B2B rotations did not alter the position. Once BA had chosen to organise its operations in that way, the resulting employment duties dictated that the expense had to be incurred.
- Having concluded that s.337 applied, the UT declined to determine the alternative findings under s.338 and s.336 because they were no longer necessary to decide the appeal.
The UT dismissed HMRC's appeal and confirmed that the Heathrow accommodation qualified for relief under s.337. Consequently, no Income Tax or Class 1A NICs liability arose on the accommodation provided to cabin crew during B2B rotations.
Useful guides on this topic
Accommodation benefit
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Accommodation: With travel or temporary workplaces
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Travel (employer's guide)
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