In this blog, we take a look at the rules around tax relief for travel and subsistence expenses for the self-employed, company directors and for employees.
While travel and subsistence might seem straightforward on the face of it, it can be extremely complex and difficult to understand in practice.
Allowable travel and subsistence costs for the self-employed
The cost of travel between the ‘business base’ and other places where work is carried out is usually an allowable expense while the cost of travel between the individual’s home and the business base is not allowable. It is possible for an individual’s home to be their business base in certain circumstances but the fact that a trader may do some work from home is not sufficient to make it their business base; according to HMRC guidance it generally only applies to ‘itinerant’ traders such as travelling sales people who do not have a normal place of work. Thus, business travel will usually be limited to occasional journeys not part of the trader’s normal pattern of travel.
When a journey qualifies for tax relief, a deduction is also allowed for any ‘reasonable’ expenses incurred on food and drink at a place to which a trader travels or while travelling there. Where a business trip necessitates one or more nights away from home, hotel accommodation and ‘reasonable’ costs of overnight subsistence are deductible.
Allowable travel and subsistence costs for limited companies and directors
The rules for limited companies and directors mirror those for employees (see below). This is because directors are treated in the same as way as other employees when it comes to travel and subsistence expenses.
Allowable travel and subsistence costs for employees
Tax relief is available for travel necessarily incurred by an employee in the performance of their duties of employment. Tax relief is also available for travel costs necessarily incurred to attend a temporary workplace.
Travel from home to a permanent workplace is regarded as ‘ordinary commuting’ and is not allowable. A workplace is permanent if an employee spends more than 40% of their working time there over a continuous period of more than 24 months.
When a journey qualifies for tax relief, employees are also entitled to claim tax relief for related subsistence costs. Relief is for costs additional to the costs the employee would ordinarily incur if not travelling on business, including the cost of meals while at a temporary workplace and accommodation where an overnight stay in needed.
An employer can pay its employees a tax fee overnight allowance for incidental costs over and above normal subsistence, such as laundry. The allowance is £5 per night where the stay is in the UK or £10 per night where it is abroad.
What is reasonable?
There is little guidance available as to what is meant by ‘reasonable’. It may vary according to different industries and the seniority of the individual. HMRC will not refuse a tax deduction simply because a cheaper alternative is available. However, where subsistence is unduly lavish HMRC may argue that there it is not wholly for the purposes of the business, therefore not deductible or it is a ‘taxable benefit’ (for an employee whose employer pays for it).
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
