Travel and Subsistence
As the director of your own limited company, you’ll be familiar with the process of claiming expenses when working on an assignment that is outside IR35. If you work away from home, either frequently or occasionally, you could claim back any costs you incur which fall under the category of travel and subsistence.
What is subsistence?
Subsistence expenses refer to the reimbursement of any food costs associated with business travel. These expenses must relate to food purchased ‘on the go’ and it is closely tied in with travel therefore if you are unable to claim your travel expenses, you will be unable to claim your subsistence.
Claiming back costs incurred whilst travelling
Travel expenses are allowable as long as they are incurred whilst travelling to a temporary place of work. Unfortunately, you cannot claim back any expenses incurred during journeys between your home and permanent place of work, as this would be regarded as ordinary commuting costs.
If you begin commuting to a location which is not part of your ordinary commute, you could be eligible to claim back any expenses incurred whilst doing so.
If you are staying away from home because of work, you are also entitled to claim back a ‘flat rate’ allowance of £5 per night, or £10 if you are staying overseas. This allowance is designed to cover expenses such as laundry, which you would not typically incur if you were staying at your usual place of residence.
Personal vehicle and business travel
When using your personal vehicle for business purposes, the rate of mileage you are able to claim changes depending on the type of vehicle you own, and the number of miles you have already travelled during the current tax year.
To calculate how much you can claim, use the below figures:
- Car: 45p per mile for the first 10,000 miles, 25p per mile after the first 10,000 miles
- Motorbike: 24p per mile, regardless of how many miles travelled
- Cycle: 20p per mile, regardless of how many miles travelled
What is a temporary workplace?
If the assignment or contract is going to last over 24 months and you are going to spend more than 40% of your working time at the location, the workplace will not be regarded as temporary. You cannot claim travel and subsistence expenses from the point you become aware that you will be working at a particular site for longer than 24 months.
The expense claim process
Claiming back your expenses is simple. Any travel and subsistence expenses claims must be reasonable, so any excessive purchases would be disallowed. As with all business expenses, you must also retain a receipt as proof that the transaction did take place.
How can Caroola help?
When it comes to claiming back expenses, there’s a lot to get your head around. As a specialist contractor accountant, we’re able to provide you with all the information you need, whilst guiding you through the expense claim process.
If you would like to discover more, call our specialist team
Travelling to your place of work is necessary for many contractors - this is why it is important to be aware of the travel expenses you can claim. Read our guide to discover what allowances you may be entitled to and how to claim relief.
How much can I claim?
When using your personal vehicle for business purposes, the rate of travel expenses you can claim changes depending on the type of vehicle you own, and the number of miles already completed in the current tax year.
To calculate how much Mileage Allowance Relief you can claim, use the below-approved mileage rates:
|Vehicle Type||First 10,000 miles (per tax year)||Miles over 10,000|
|Car||45p per mile||25p per mile|
|Motorbike||24p per mile||24p per mile|
|Cycle||20p per mile||20p per mile|
Company cars as an expense
If you are unsure whether supplying a company car is a sound financial decision, it is worth considering the following implications, either as an employer or employee:
Implications for employers
You cannot reclaim VAT on the purchase of a new car. When purchasing a second-hand car, VAT is not normally charged, but if there is a charge, this can be reclaimed.
If you acquire a company car through a lease contract, then the monthly charges may include VAT. Businesses which are on the Flat Rate VAT Scheme cannot reclaim any of this amount, but those which are on the standard VAT scheme can claim back 50% of payments. If there is a maintenance contract for the car, which is itemised separately, any VAT charged on this may be reclaimed by businesses which are on the standard VAT scheme.
The value of the benefit in kind will be the same whether the car is leased or purchased outright, but the way it is treated for the purposes of Corporation Tax will vary.
Implications for employees
An employee with a company car will be considered to be in receipt of a benefit in kind, the value of which will be taxed at their marginal rate, effectively treating the benefit as salary.
The value of a benefit in kind is calculated using the cost of the car when purchased (including any additional extras), the CO2 emissions and the type of fuel on which it runs.
In some circumstances, providing an employee with a company motorbike can be a more tax-efficient option than supplying a company car. Some of the main benefits of a motorbike over a car include:
- VAT charged on the purchase of a company motorbike can be reclaimed, but VAT must be charged on the motorbike if it is resold
- There is no upper limit on what can be claimed when it comes to the company’s tax calculation, meaning that the entire cost of the motorbike qualifies for capital allowances
- The value attached to a motorbike as a benefit in kind is significantly lower than other forms of transport, meaning lower tax liabilities
- The employee will be taxed as having received a benefit in kind, so the company will have to pay additional Class 1A National Insurance.
Company vans are taxed differently to Company cars. However, in order to claim expenses for a company van, it must qualify to HMRC’s set definition. This means that it must be purpose-built (not just a conversion which involves covering the windows etc) goods vehicle with a maximum legal laden weight of 3,500 kilograms.
The main benefits of a company van include:
- When a new van is purchased, the entirety of the VAT can be reclaimed. Second-hand vans usually have VAT included in the price (which can also be reclaimed). VAT must also be charged if the van is later sold on
- There is no upper limit on the amount of tax that can be claimed, so the entire cost of a company van will qualify for capital allowances
- As company vans attract lower benefit in kind values, the tax charges associated tend to be lower
However, an employee will be taxed as having received a benefit in kind, so the company providing it will also have to pay additional Class 1A National Insurance. This does not apply if the van is only used for business purposes and any personal use is insignificant, but this means that if the van is usually parked at your residence overnight then it could be hard to prove that any personal usage is incidental.
Assuming the Van is used for personal use the following flat rate of taxable benefits arise:
Van Benefit: £3,430 per annum (zero emissions Van is £2,058 per annum)
Fuel Benefit: £655 per annum (where the employer pays for private fuel)
These benefits should both be included on the individual’s personal tax return and will be taxed at the employee’s marginal rate. This means that someone who pays a basic rate of tax on their salary will be liable for an additional £817 each year. If they had dividends which took them up to or over the high rate threshold (not taking the benefit in kind into account) then there would be an additional £1,328 in tax to be paid.
HMRC may also wish to collect any tax due directly via the individual’s salary.
The employer would also have to include the use of the van on an employee’s P11d form every year and pay Employer’s National Insurance Contributions at a rate of 13.8 per cent on the value of the benefit in kind. In the example above, this would mean an additional tax bill of £563.73.
The costs of running the van, such as insurance and maintenance, can be paid by the company without adding to the employee’s tax bill, so long as all invoices are in the company’s name.
The Cycle to Work Scheme aims to provide a tax incentive for employees to choose environmentally friendly modes of transport with added health benefits.
A limited company can provide an employee with a bike assuming that the following conditions are met:
- The company owns the bike and related equipment
- The bike itself is used mostly for qualifying journeys
- The employee does not gain ownership of the bike during the loan period
- The use of a loaned or otherwise provided cycle is available to the entire workforce
Claiming expenses on transport and air travel
You are also able to claim for the cost of travel by public transport via train, plane and bus. In order to claim, all receipts must be kept. Tickets should also be booked as far in advance as possible.
In order to claim expenses for travel in taxis, employees are expected to only use when necessary and when it is cost effective to do so. Receipts must also be retained for expenses to be claimed.
If an employee stays away from their home in the course of their duties, then they can claim the costs of accommodation back from their employer, as long as they do have a permanent place of residence.
There is no confirmed limit on the amount which can be claimed for accommodation, but HMRC will expect every claim to be reasonable. This is usually easy to demonstrate, except in cases where the nature of the accommodation means that it could be construed as a reward for the employee as opposed to an expense, which is incurred wholly and exclusively for the purposes of doing business.
The full cost of hotel, guesthouse and bed and breakfast accommodation is allowable for Corporation Tax purposes so long as they are not excessive.
If renting a furnished flat is a more cost effective way of providing accommodation for an employee, then these costs are also allowable as long as the standard of the furnished flat isn’t of a significantly higher standard than that of the employee’s normal residence. In the case where an employee’s normal residence is of a particularly high standard, an equivalent flat may not be allowable.
A short term lease on a rented flat should be taken out in the company name, and paid directly from the company bank account where possible. The length of the lease should also be taken into account when considering the 24 month rule, as it may be considered as an indication of how long an employee intends to be based on the same site.
There are situations which will not be allowable, these include:
- If the employee is accompanied by their family – this is considered non-business usage
- If the choice of location is not work-related – this is considered a non-business reason
- If the standard of the location is unreasonably high
If you are travelling to a temporary location for work purposes, then you may be able to claim for the cost of lunch purchased during travel or during your lunch break. These must be additional costs which you would not have spent were you not at the temporary place of work.
Lunch usually takes the form of a pre-packed sandwich (or equivalent), a meal in a café or canteen and can include a non-alcoholic drink. However, you cannot claim the cost of ingredients to make your own ‘packed lunch’, or the costs of a meal purchased the night before the trip to the temporary location.
If staying away from home overnight due to work commitments, you can claim the cost of breakfast and an evening meal. These must be reasonably priced and not to a standard which would be beyond what you would normally have. You can also claim a ‘flat rate’ incidental expenses allowance of £5 for each night, or £10 if you are overseas. This covers expenses including laundry and phone calls that you would not incur if you were at home.
The 24-month rule and travel expenses
If your contract requires you to travel to a place of work, you may be able to claim travel expenses. However, once you have worked at this workplace for more than 24 months, or from the time that you are aware that your assignment will last longer than 24 months, you will no longer be allowed to claim expenses. You can find more information about the 24-month rule in our guide.
Keeping your expenses out of suspense
The Caroola team is always on hand to provide you with tailored advice regarding your travel expenses. We're here to make sure you don't lose a penny of your expenditure when delivering your projects.
Our guide to expenses should address any questions you may have. Alternatively to speak to a member of the team,
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