Whether you’re a freelancer, contractor or a small business owner, you may be called upon to work away from your normal base, occasionally or frequently. This will create travel costs for your business, while you’ll also need to feed yourself. But, what are the rules when it comes to claiming for such costs?
What travel and subsistence costs are allowed?
To be able to claim for travel costs, you must be travelling to a temporary place of work. That’s somewhere you visit to perform a task for a limited duration or impermanent purpose, for example, a short-term contract (but see 24-month rule below).
You can claim the cost of travelling for business or mileage if you use your own car (45p per mile up to 10,000 miles in a tax year; 25p per mile thereafter).
If you must travel on business, you can also claim for subsistence, for example, lunch or an evening meal while you’re away. For overnight stays, you can claim £5 per night without receipts for “incidentals” (£10 abroad), such as a tip for a taxi driver or hotel porter.
What about working overseas?
If your work takes you abroad, you can claim all the costs of flights, hotels, food, etc, even if you spend a small amount of time seeing the sights at the end of your trip. So, you can claim all the costs for a four-day visit to a trade show in Las Vegas, even if you have a morning trip to the Grand Canyon at the end (but not the cost of travelling to the Grand Canyon), because the main purpose of the trip is business.
However, obviously, you can’t claim the cost of a two-week holiday, just because you spend a morning in a meeting while there; you can only claim the direct costs of that meeting.
HMRC will expect to see evidence of meetings/business activities (eg emails) if it suspects the trip is really for enjoyment rather than business.
If it’s more cost-effective to rent a property instead of staying in hotels for longer contracts, this will usually be allowable, as long as there isn’t any personal use or rooms used by friends/relations, because this would mean it wasn’t wholly for business.
How much can you spend on food?
There are HMRC benchmarks for subsistence, for example, £5 per day for lunch, but you’re supposed to ask HMRC’s permission to use these. In a “one-person” company, I recommend claiming your actual expenditure, because this avoids the problem of HMRC trying to claim you never spent the money.
Because use of debit cards and contactless payments is widespread, this is less of a problem than it used to be, when you’d have to keep lots of receipts.
The benchmark rates are not an allowance; they’re more of an administrative convenience and you can’t claim them if you make your own sandwiches – you must cover this cost.
What is the 24-month rule?
You can’t claim travel costs for commuting, but if your home is your business base and you travel to a temporary workplace, you can claim actual travel costs or mileage and also subsistence expenses.
This applies to a site where you spend more than 40% of your time. A temporary workplace is one where you are based – and always expect to be so – for less than 24 months. So, if you have two 12-month contracts at the same site, you cannot claim travel and subsistence after 12 months, because the site had become permanent – you knew you were going to be based there for two years at that point.
The journey is the key factor. So, a new contract at a different company, but in the same area (HMRC uses the City of London as an example), does not re-set the clock to zero. But, a change of location that brings a significant change in the journey does re-set the clock, even though it’s for the same customer.
Home office work
The more business activities you undertake at home, the more it will be established as a base for your business. HMRC could argue, in some circumstances, that a contract was at a permanent place from day one, if it looks as if it may be the only place you work. This is especially true if you’re later taken on as an employee at the same site or your agency, trying to be helpful, writes that you are starting work on “a long-term contract”. In this case – no travel or subsistence claims would ever be allowable.
There are lots of useful examples on the HMRC website [https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32000] about the 24-month rule. It’s clear that HMRC believes people are “abusing” these rules, which makes them a target for investigation. Make sure you can support your claim, especially if they’re large; watch your contract renewal dates; and do as much income-generating work from your home office as possible.
The detailed rules and case history on travel and subsistence is vast and hugely complex, with specific cases related to e.g. doctors, locums, building subcontractors, barristers etc. If in doubt about whether your travel and subsistence costs are allowable seek advice specific to your circumstances from a reputable accountant or qualified tax advisor. A generic internet search will throw up lots of advice, much of it incorrect!
This blog applies to Limited Company Travel and Subsistence – the rules are slightly different for the self employed operating as a sole trader.