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You’re at work, you buy some food, it must be a travel and subsistence expense. Simple, surely? Think again!
Travel and subsistence expenses are one of the areas of business travel that causes the most confusion. So, what are your options for claiming these expenses and how do you get it right?
Put simply, travel and subsistence expenses are the costs for your journey, your accommodation and your food and drink during a business trip. Motor travel expenses have already been discussed in a separate post. This blog will focus on the other types of travel costs, and in particular, the subsistence side of things – meals, food and drink.
Being at work is not enough for a meal to be counted as a subsistence expense because, as HMRC argues, “everyone must eat to live”.
As with other types of travel expenses, we are looking at what is allowable as a business expense for sole traders or what can be reimbursed without being a benefit in kind for employees and company directors.
Generally, food and drink are allowable expenses on journeys that are away from the base of work and outside the usual pattern of work travel (for sole traders) or to a temporary workplace (for employees). So, that daily coffee you buy on the way to work, would sadly not count as a subsistence expense. But the latte at the train station on the way to a client meeting in another town, may be allowed.
Establishing whether a journey can be counted as a business trip, is always the first step because the other travel expenses follow from there. No business journey, no travel expenses. Business journeys are a complicated area and there is a whole blog post covering this topic.
But just because a meal is part of a business trip, doesn’t always mean that it’s subsistence. If you pay for other people, such as customers or suppliers the meal would be classed as entertaining rather than subsistence. Again, this is another complex area which has implications for corporation tax, income tax or VAT.
Alcohol on its own would be classed as entertaining, although limited alcoholic drinks can still be included as subsistence when drunk as part of a meal.
You can claim any actual costs incurred. These costs need to be evidenced e.g. with receipts, bills or other proof.
This applies to sole traders putting expenses through their business, to employees claiming travel expenses from their employer or directors claiming travel expenses from their limited company.
HMRC doesn’t care whether you travel first class or if you dine in MacDonalds; any reasonable expenses are allowed. The only limits HMRC sets are if the expense is lavish enough to be considered as some kind of employee reward rather than purely a travel expense, or if it doesn’t meet the criteria as a wholly business expense.
If you’re an employee making a journey that meets the criteria as business travel, but you aren’t reimbursed for the full cost by your employer, then you can claim the balance. This can be done directly to HMRC or via a self assessment tax return.
Employees (and company directors) have an alternative option for claiming some travel expenses. Instead of using the actual cost, you can claim meals at HMRC’s benchmark rate. These rates unfortunately don’t apply for sole traders or partnerships.
The rules around these benchmark rates changed from April 2016. Previously there were amounts set for specific meals. Now the rules are based on minimum journey time rather than meals.
The benchmark rates are the maximum that can be paid to an employee without incurring tax or NIC on the payment and without using the actual costs. Employers can pay less than these rates if they wish.
However, this doesn’t mean that you can just chuck all of those travel receipts in the bin. The employer has to have a checking system in place to make sure benchmark payments are being claimed legitimately. This could still mean hanging onto some receipts as evidence.
You can only claim one allowance per journey. If you had a 12 hour journey you could only claim £10, not £5 and £10.
A meal can only be reimbursed once. For example, if a hotel bill included an evening meal, you couldn’t claim the £25 allowance as well. But you could claim the £10 allowance for the other meals during that day.
There are no benchmark rates for overnight accommodation or for staying with friends and family. For these expenses, you use the actual cost.
There is however, £5 per night that can be paid for overnight stay incidentals (such as phone calls and newspapers).
Instead of using the standard rates, a business can also agree its own bespoke benchmark rates with HMRC. They can also apply to use an approved industry scale rate, if one exists.
Remember – these benchmark rates apply only to employees, not to sole traders or partners.
Start by establishing whether it’s a business journey. If the journey is not allowed, then the expenses won’t be allowed either.
Think about whether it might be classed as entertaining rather than travel and subsistence.
Sole traders and partners can only use actual cost.
Employees and company directors can use benchmark scale rates as an alternative method for meal costs.
When it comes to claiming business travel expenses, it really is all about the journey.
Once a trip is classed as a business journey, all the other travel expenses such as subsistence or motor costs can follow from there.
But this isn’t always straightforward. Whether something counts as a business journey depends on your particular circumstances and how you operate.
There are also some differences between sole traders / partnerships and limited companies. But before we get into the differences, let’s look at the key rules that are the same for all businesses.
The first important rule is that travel between home and work (your normal commute) is not allowed.
There are some differences as to how the workplace is defined, but the common factor remains that journeys between home and work are not classed as business travel. Therefore no associated expenses can be claimed.
The other important thing to remember is that for business expenses, the trade purpose must be the only purpose. This applies to all types of business.
So if there is a dual purpose to a journey (business and private), then the whole journey and all associated expenses could be disallowed. As ever are some exceptions and complexities, but as general advice it’s much better to avoid making dual purpose journeys if you can.
There are different sets of legislation and rules between sole traders / partnerships and limited companies which are similar, but not exactly the same.
The main reason for the difference is that directors of limited companies are considered employees of the company, so what they can claim for travel is covered by the rules around employee expenses along with any other employees.
A sole trader (or partner) is not an employee, so what they can claim is covered by a different set of rules. If the business has employees then the employees will be covered by the employee expense rules, but the sole traders or partners themselves won’t as they are not employees.
The main differences relate to how the workplace is defined.
The workplace for sole traders or partnerships is defined by the base of operations.
The workplace doesn’t have to be a building, office or shop that you own or rent. It can be anywhere that you regularly carry out your trade. So for a personal trainer, this could be the local gym.
Base of operations really depends on how you run your specific business. You need to think about your particular circumstances. Some areas to consider are:
Once you’ve established your base of operations then you should not claim any expenses for journeys made between home and that location. These journeys are classed as your normal commute.
This seems simple enough if you operate from a shop or an office, but what about other businesses that operate from home or don’t have a specific workplace?
Some traders are “itinerant”, meaning they don’t operate from a specific location. For example, a builder who travels to wherever the job is located and operates the business from their home. Admin such as bookkeeping and invoicing is done at home, tools are kept at home and the home address is used for the business correspondence. In this case the base of operations will be home and travel from home to the various jobs can be counted as a business journey.
Working from home sometimes doesn’t automatically make it your base of operations. If you sometimes or partly work elsewhere then this could well be counted as your base of operations rather than home. Particularly if it’s a regular location and / or the trips are predictable. This could include a location where equipment is stored or if you visit a depot to pick up items before starting work. The more regular and predictable the journey between home to a work location, the more likely it could be considered as part of your commute rather than business travel.
The base of operations doesn’t have to be a single building, in some circumstances it could be a larger geographical area, your general area of trade. If you live some distance from your area of trade, it gets more complicated. In this case, the journey from home to the area of trade could be counted as your commute. As the commute is not allowed, this part of the travel would be disallowed as a business journey.
Working out the base of operations can be tricky for certain businesses. If you aren’t sure, then this is something you can discuss with your accountant.
For a limited company, the director and other employees fall under the rules covering employee expenses. These rules look at which expenses can be reimbursed without being classed as a benefit in kind.
For an employee, the travel has to be necessary as part of the duties of their job. This could be because it is directly as part of the job itself or because they have to visit somewhere in the course of their job.
This is broadly the same as expenses having to be wholly business related for sole traders and partnerships. But the focus and detail is slightly different; you have to consider the person and the job role rather than the general business.
There is no concept of base of operations for employees, instead we look at whether it’s a permanent or temporary workplace.
A permanent workplace is a place at that you attend regularly for the performance of the duties of the employment
The employment contract usually states the permanent workplace and this is normally a good indication. However for tax purposes, it’s the pattern of work that dictates the permanent workplace and sometimes it may not agree entirely with the contract.
Here are some other common indicators of a permanent workplace, although these will vary depending on the specific job:
Travel to your permanent workplace is your normal commute, so you can’t claim expenses associated with that journey.
HMRC have some specific measurements to determine whether exactly how much time must be spent for somewhere to be classed as permanent rather than temporary.
As with the sole trader / partnership, a workplace doesn’t necessarily have to be an office, factory or shop.
Your permanent workplace can be home.
It’s possible to have more than one permanent workplace. If you travel between two or more permanent workplaces, the trips between can count as a business journey. You can claim the expenses for this. What you can’t claim is the journey to and from home at either end.
A depot or similar base can be a permanent workplace even if you don’t spent that much time there (Depot and Bases rule). It can be classed as permanent if it’s the base from which you work regularly or are routinely allocated tasks.
The permanent workplace doesn’t have to be a specific building, it can be a larger area. If the duties of employment are defined by a specific geographic area then that whole area is the permanent workplace (the Area rule). If you live outside the boundary of your work area, then the journey to and from the boundary is your normal commute. Journeys inside the boundary are business travel and allowable.
A temporary workplace is somewhere that you attend in the course of your job that doesn’t qualify as a permanent workplace. The two key aspects are:
You can only claim for necessary attendance. If you chose to work at a temporary workplace because it’s preferable or easier, then no expenses can be claimed.
Travel to a temporary workplace in the course of your business duties is classed as a business journey. You can therefore claim any expenses associated with that journey.
However, if you’re going to a temporary workplace that has a similar journey to your permanent workplace, then you can’t claim those expenses. For example, offices in the same travelcard zone in London, buildings located close to each other, journeys in the same direction and similar length.
How about if you have to drive by or close to your permanent workplace on the way to a temporary workplace? Do you lose the commute part of the journey? If you don’t stop then you are fine and the whole journey can be claimed. However, if you do stop at your workplace and perform some duties, then you have to split the trip into two parts, the normal commute part and the permanent to temporary workplace part.
A temporary workplace can become permanent even if you haven’t been there for more than 24 months.
In the 24 month rule, it is the “expect to” part that becomes important. It doesn’t matter if your role at a particularly location is in month 1 or month 24. As soon you expect to be there for more than 24 months for more than 40% of the time, it becomes a permanent location.
So if you’re 6 months into a 12 month placement and it gets extended for another 2 years, then it immediately becomes your permanent workplace. It doesn’t matter that you’ve only been there 6 months, it’s how long you expect to be there that counts.
The reason this is important is because, as soon as it becomes your permanent workplace, the home to work trip is no longer a business journey and you can’t claim for any associated expenses. It has become your normal commute.
In many ways the rules around business travel are similar across all business structures as the overall intention is the same. However the workplace definition for employees is more rigidly defined and complex than for sole traders. So if you’re moving from one business structure to another, this is something to watch out for.
The first step is to work out your base of operations or permanent workplace (depending on your type of business). This gives you the basis for whether you’re making a business journey or just carrying out your normal commute.
If you’ve firmly established that you’re making a business journey then you can claim the associated expenses such as motor costs, meal or accommodation costs. These type of expenses are broad topics in their own right and will be covered in the future.
If you’re in doubt about your base of operation, your permanent workplace or whether something counts as business travel, then this is something you can discuss with your accountant. If you would like to chat to us then just email to tax@cooperfaure.co.uk.
Whilst ‘how much does a UK accountant cost?’ is a seemingly simple question, in the past it has been hard to get a clear answer.
Traditionally accountants have aligned themselves with other professional services charging based on timesheets. This would leave you with little idea of the total cost for the year until after the services were delivered. Often you would get a nasty surprise.
The great news is those time are changing. Now you are in control. You can have certainty on the price to be paid and can pay the fee monthly.
The first decision that you need to make is whether you view accountancy services as a commodity or a value add. There is no right or wrong answer, it is what is better for your business.
Accountancy can be viewed as a commodity for managing your business compliance. You want to keep the bookkeeping up-to-date and file the annual accounts and tax returns. If this is the case, the key driver should be price.
There are a number of online solutions for this. For example, Crunch, The Accountancy Partnership and Mazuma Accountants to name three. For a sole trader or a simple owner-director Limited Company the monthly fee would be under £100.00 plus VAT.
Indeed, with the developments in automated bank feeds, machine learning in accounting software and artificial intelligence, it is likely that the cost of compliance will fall even further.
However, partnering with the right accountancy can add tremendous value to your business.
Google search “accountant” in your hometown and you will be presented with an array of firms offering accountancy services. Notably, the vast majority are not explicit on the cost unlike their online solution counterparts. The website is more an invitation to start a conversation with the fees to be discussed later.
At CooperFaure, the COVID-19 pandemic has given the opportunity for us to re-evaluate how we work. We can now focus our time on delivering more value to our customers locally, nationally, and internationally.
The first step is to give you clarity on the price. We have three levels of service plans for a fixed monthly fee.
The second step is to demonstrate how we add value. In our opinion, this is not by reporting on what has happened, it is about providing the tools, experience and advice to guide you for the future.
It is all about tomorrow not yesterday. We have developed a suite of business intelligence and analysis to support you towards your destination.
Are we more expensive than our local accountant counterparts? Likely yes, but we are giving you complete transparency with no hidden extras.
It is all too easy to have a visually attractive website with no substance behind it. We have fifteen years as a business supporting and nurturing customers like you grow by combining traditional values and modern techniques.
Our philosophy is that, if you partner with CooperFaure, we will deliver true insights that will add value to your business. We offer a thirty-day free trial, do not tie you in to a long-term contract and give you the freedom to move between plans.
In other words, it is you the customer that has the ultimate say in whether we have added value.
In summary, there is an abundance of choice. There accountants available, whether you are looking for a price-driven compliance solution, more support from a local accountant or a full added-value solution. As we said earlier, there is no right or wrong answer, it is what best for your business.
If you would like to see how we can help you can find a list of our products and prices here.
A question that we are asked all the time is, “What kind of business should I start in the UK?”. There are really three main options and the truth is each option has pros and cons. The decision should be based on what is best for you, your situation and your customers.
Here is a high level view of each of the choices available to you. Overall, our advice is to incorporate. The cost is relatively inexpensive and has the benefit of limiting your personal liability.
As a Sole Trader, you are the business. As such, you would be personally responsible for any loan, credit agreements or unpaid bills. Even though a Sole Trader can be VAT registered and have employees, there is a perception that this is a smaller operation than a Limited Company. However, there is a lessened level of paperwork.
A Partnership is where you and other people decide to work together in a business. In most cases, a Partnership is like a Sole Trader and you are collectively personally responsible for your business. The partners share the profits and each pays tax on their share.
There are other forms of Partnership that offer limited liability but the paperwork is on a similar level to a Limited Company.
A Limited Company offers you protection by limiting your liability. Any loan or credit agreements would be in the name of the company offering a degree of safety to the individual. A Limited Company is often viewed as a superior entity when coming to winning new business.
Whichever is the best option for you, there are statutory requirements to register your business before you start trading. Our Business Set-Up service will take care of these for you.