BA wins £5.78m tribunal fight on Heathrow crew hotel tax relief

The Upper Tribunal (Tax and Chancery Chamber) has dismissed HMRC's appeal against British AirwaysNationalarchives over hotel accommodation provided to cabin crew at London Heathrow during back-to-back transatlantic rotationsNationalarchives, confirming the cost is deductible as a travel expenseNationalarchives, escaping income tax and Class 1A National Insurance contributionsNationalarchives. The decision, [2026] UKUT 366 (TCC)Nationalarchives handed down on 28 September 2026Nationalarchives, upholds the First-tier Tribunal's April 2025 ruling; the parties agreed the appeal outcome would determine treatment over 6 April 2016 to 5 April 2020Nationalarchives, with about £5.78 million in disputeNationalarchives (the £555,916.92 Class 1A sum covered the 2018-2019 sample period).

A back-to-back rotation links two transatlantic trips into one itinerary: crew fly London Heathrow to New York, return, rest near Heathrow, then fly to Washington DC and back. Between the two outbound flights, crew spent around 14 hours in a Premier Inn near Terminal 5. Use of the hotel was voluntary until February 2016Nationalarchives, when the EASA Flight Time Limitation Regulations made it mandatoryNationalarchives. Crew contracts incorporated the operations manual and scheduling agreement, and hotel no-shows were monitored and followed up.

HMRC accepted that the hotel was a benefit within the benefits code unless an exemption applied, and accepted that equivalent accommodation provided to the same crews in the United States qualified for relief. The dispute concerned only the Heathrow nights. The parties agreed the crew were obliged to incur the cost as holders of the employment, so the case turned on whether the Heathrow hotel expenditure fell within section 337 of the Income Tax (Earnings and Pensions) Act 2003Nationalarchives, which allows a deduction for travel expenses necessarily incurred on travelling in the performance of the duties of the employmentNationalarchives.

On the duties question, the Tribunal held that once rostered on a rotation, the crew's job was the whole rotationNationalarchives, and the obligation to stay at the Heathrow accommodation was an intrinsic part of it, not a collateral requirementNationalarchives. It rejected HMRC's argument that the obligation was merely a commercial choice by the airlineNationalarchives, finding that business configuration within the regulatory framework frames the dutiesNationalarchives, and that the duty to stay in the accommodation flowed from itNationalarchives.

On travelling, the Tribunal agreed the First-tier Tribunal had erred in relying on the regulatory deeming of Heathrow as a slip stationNationalarchives, but reached the same conclusion on the facts: the journey does not end at intermediate stopovers and ends only when the rotation completesNationalarchives. Home base is a regulatory term for rest calculations, not homeNationalarchives; while rostered, crew are away from home and travelling throughoutNationalarchives.

On necessity, the Tribunal applied the strict test: the duties must impose the expenseNationalarchives. Because the duties included staying at the Heathrow accommodation, and crew, once rostered and signed in for the first leg of the rotation, were contractually required to fly it and to stay in the accommodationNationalarchives, so the expense was necessarily incurredNationalarchives. The Tribunal did not decide the alternative section 338 or section 336 grounds, which were mootNationalarchives, and left undisturbed the First-tier Tribunal's rejection of the section 99 living-accommodation exclusionNationalarchives, which British Airways did not pursueNationalarchives.

For employers and advisers, mandatory home-base accommodation in part of a continuous rotation can be treated like overseas stopover accommodation: deductible under section 337Nationalarchives, so no income-tax liability arises via the benefits code under section 289DNationalarchives. The reasoning turns on roster-wide duties and mandatory useNationalarchives; voluntary rest between separate duties remains distinguishableNationalarchives.

Legal basis: sections 337, 289D and 361/365 of the Income Tax (Earnings and Pensions) Act 2003Nationalarchives under section 10 of the Social Security Contributions and Benefits Act 1992Nationalarchives; ORO.FTL.235 of the EASA Flight Time Limitation RegulationsNationalarchives.