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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.
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