Travel and Subsistence costs
A common question that is asked is when my business can claim a deduction for travelling & subsistence costs.
The first question that you must ask is how is my business set up?
In this article I will be addressing the travel and subsistence rules for Employees of Ltd companies. If you are setup as one of the above entities other than Ltd these rules do not apply. It a tax trap to confuse the rules for corporation tax and employment income with the self-employed subsistence rules.
In this article, I am going to assume that I am discussing a directors/shareholder of a small Ltd company.
What is subsistence?
Subsistence is the tax term for food and drink.
• Subsistence is an expense that is normally incurred in conjunction with Qualifying business travel or when staying away at a temporary workplace.
The cost of business travel includes:
• The cost of any necessary subsistence costs incurred in the course of the journey.
• The cost of meals necessarily purchased whilst an employee is attending a temporary workplace.
• When business travel costs are allowable for tax, so will be subsistence, accommodation and any other incidental costs of travel that are incurred by the employee at the same time.
• An employer can reimburse employees for subsistence free of tax and NICs
• The expense is fully deductible in the employer’s accounts.
• A business can reclaim VAT on this expense, providing the employee provides a VAT receipt.
When can I make a claim for subsistence?
A claim can only be made if it is in conjunction with allowable business travel, or a business trip including accommodation. So, if you are travelling for business and meet the allowable business travel rules you can make a claim for subsistence as well. Generally, with a small company the expenditure will be incurred by the Ltd company, and if it meets the travel and subsistence rules no benefit in kind should be incurred.
Is it a qualifying journey
The costs of travel and incidental costs qualify for tax and NICs relief when a director must travel between different:
• Work appointments.
There is no tax relief for the cost of home-to-work travel (commuting) unless:
• ‘Work’ is a temporary workplace, or
• Home qualifies as a workplace.
• The cost of travel between home and a permanent workplace is not allowable for tax, however, the cost of some triangular travel where the journey is via a temporary workplace may be allowable.
Owner-manager directors perform many different duties of office and employment and so whether a home qualifies as a workplace in relation to an individual director will depend on the facts of each case.
When travel is allowable for tax, so are the incidental costs of travel, these include:
• Incidental overnight costs.
How much can I claim for subsistence?
There is no limit on what you can spend. But for a corporation tax deduction the business must meet the wholly and exclusively for tax rules. So excessive spending will be a risk. What is excessive will depend on the situation.
You need to keep your receipts. your claim cannot exceed what you spent and should be matched by receipts.
Can I claim an allowance instead of receipts?
You can claim a fixed rate, known as a scale rate.
What is the benchmark scale rates?
HMRC’s benchmark scale rates for subsistence are designed to be used by employers. However, there seems to be no reason why an employee should not use them to claim tax relief from HMRC, other than the fact that HMRC does not mention it.
You will still have to prove to HMRC that you undertook a business journey for a certain amount of time to justify your claim.
|Allowance||Conditions||Max paid per day (if working after 8pm)|
|£5||The duration of the qualifying travel in that day is 5 hours or more||£15|
|£10||The duration of the qualifying travel in that day is 10 hours or more||£20|
|£25||The duration of the qualifying travel in that day is 15 hours or more and is ongoing at 8pm||£25|
|£10||An additional meal allowance not exceeding £10 per day may be paid if an allowance of £5 or £10 is paid and travel is ongoing at 8pm.||n/a|
Up to £25 (max)
If employee’s journey lasts five or 10 hours and he also must work late, or start early
These trips must be on an irregular basis, and you should not pay these if your employee makes their own lunch, or you are staying with friends or family.
Overnight subsistence rate
HMRC has not set a benchmark rate for overnight subsistence in the UK, though its overseas benchmarks do include overnight.
There are special rules again for overseas travel which I am not covering here.
How much can I for Travel?
Travel by car is much similar than subsistence, you can currently claim 45p pr mile driven using your own private car for the first 10,000 miles and then 25p after that.
Different rates apply for bikes and motor bikes.
If you are carrying a colleague, you can add an additional 5p per mile to this allowance.
Costs of hotels and accommodation can be claimed using an actual receipts basis there are no fixed sum allowances for accommodation.
If Trains or planes or busses or taxi are used, then a claim using a valid receipt will need to be made.
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