What are the rules on subsistence and travel?

One of the most frequently asked questions from business owners and employees is ‘how much can I claim for meals and travel?’

Its such a common question that HMRC have a specific notice (490 Employee Travel) which explains the rules with examples

Click to access 490.pdf

Here are some of the key points:

Section 1.7 Tax Relief

If an employee is obliged to incur travelling in the performance of their duties, provided the journey isn’t ordinary commuting they employee is entitled to tax relief on the full cost of Travel.

Section 3.2 Ordinary Commuting

Ordinary Commuting is travel to/from a permanent place of work, normally from/to home

3.8 excludes Private Travel

3.12 states that Non Exec Directors traveling to the company for board meetings is Ordinary Commuting

Section 3.18 The 24 Month Rule

In summary if you work at temporary place of work for less than 24 months you may be able to get tax relief.

Section 3.36 Employees who work from Home

If an employee performs substantive duties at home, then it may be treated as their place of work.

Where this is the case travel to other work places will be business travel.

Section 5.1 The Amount of Tax Relief

If the trip qualifies as business travel then the full cost will be allowed for relief, you don’t need to try to save money on the cost of the trip!

Section 5.4 Subsistence

Subsistence includes:

  • any necessary subsistance in the course of the journey
  • the cost of meals at a temporary workplace
  • the cost of meals as part of an overnight stay

Section 5.12 Scale of Expenditure

Where the travel is unusually lavish HMRC will consider whether the trip is really a reward or part of remuneration, but this is rare and HMRC will not seek to deny costs because for example you travel first class rather than second class.

Section 8.4 Incidental Expenses

These are £5 in the UK and £10 when overseas per night to cover expenses such as Laundry, Phone Calls and a Newspaper

Section 8.14 Unpaid Directors

Unpaid directors are entitled for relief for any they receive to cover travel

Scale rate payments

If you provide your employees with a set amount of cash for some common business expenses like travel and meals, these are known as ‘scale rate payments’.

As long as your employee has actually spent the scale rate payment on business expenses, you won’t need to check every single receipt – it’s fine to just check a sample.

You can set up a scale rate payment by either:

2016/17 rules on the tax free allowance for Sandwiches


Can HMRC dictate where I stay on Business?

Business Woman talking on the smartphone in a room of the hotel

Assuming your employer or supplier or customer aren’t reimbursing your costs….

If you’ve got to make journeys for business purposes you can deduct your traveling expenses from your taxable income – so you’ll pay less tax. (If they pay and its ‘wholly and exclusively’ for business they get the tax deduction and its not a benefit in kind)

In addition, there is no restriction on the standard of travel and accommodation, provided the main purpose of the trip is that of business, you can travel first class and stay at the best hotels.

But what if the trip is partly business and partly pleasure, in this case you will need to apportion the costs and only claim for the business element.

The problem comes if the hotel bills somethings outside of the normal package for example a round of golf, this could well become a taxable benefit.



Space Accounting – Are you ready for take off?

Space shuttle taking off on a mission. Elements of this image furnished by NASA

Space flights could soon become available to everyone.

According to Virgin Galatic

…..The roughly 700 Virgin Galactic future astronauts who have already paid deposits for their flights on SpaceShipTwo come from more than 50 different countries, about half of which have never before sent a human to space. They span in age from under 10 to over 90 years of age. They practice many professions and speak many languages.

In the near future, our astronauts will share their version of the Overview Effect with audiences who have never dreamed of hearing it and who will go on to be the innovators, inventors, and entrepreneurs of tomorrow. Some of them may even earn the scholarships offered by the Virgin Galactic Future Astronaut community through Galactic Unite.


Space flights are an emerging industry and are expected to become dominate in the coming decades.

Many other opportunities are also under consideration including manufacturing in space! and possible mining work taking place on the Moon and Mars

What tax jurisdiction do space activities fall under? What accounting standards do we use in space? Which accountant are we going to send to audit the mining operation on the moon?

It will take time to develop Internationally Accepted Accounting Standards for Space. It will take time to solve the accounting problems of space travel. And it will take time to train the next group of auditors to be astronauts. I encourage my fellow CPAs to get involved in the commercialization of space and start a space department at your firm. We should be working together now to develop solutions to these problems and enable the exploration of a new frontier. [accounting today Article By Zach De Gregorio ]




Travel and Subsistence tax restrictions starting in April 2016

Oh no!

It’s estimated that 430,000 contractors will be affected by the new rules!

Under the new rules certain groups of workers will no longer be able to claim tax relief on travel and subsistence expenses, specifically:

  • Those employed via umbrella companies (employment intermediaries).
  • If you personally provide services to another person.
  • The draft legislation confirms that limited company contractors are not affected by this new restriction, except for any contract work they carry out which is caught by the IR35 rules.

We expect that the new rules will prevent claims for routine travel but allow exceptional travel. For example say you normally work in London that would be excluded but they you have to go to a meeting in Birmingham, that trip should be allowed.




What are Dispensations and Scale Rate Allowances?


Its nearly time to prepare your P11D’s, here is a link to the 2014-15 P11D

You’ll need to submit an end-of-year form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.

The form will either be a P9D or a P11D, depending on the expense or benefit.

You may need to submit form P11D(b) to report the amount of Class 1A National Insurance due on all the expenses and benefits you’ve provided. You should do this if:

  • you’ve submitted any P11D forms
  • you’ve been sent a P11D(b) form by HMRC

If you don’t submit any P11D forms, you can tell HMRC that you don’t owe Class 1A National Insurance by completing a declaration.

Due by 6th July 2015.

As an employer, you can apply for a dispensation on some expenses and benefits you provide for your employees. This means you won’t need to report them to HM Revenue and Customs or pay tax or National Insurance on them. Here is a link to apply for Dispensations.

There are also Benchmark Scale Rates which can be paid tax free, alternative you can claim the actual costs

Description Amount (up to)
Breakfast rate £5
One meal (5 hour) rate £5
Two meal (10 hour) rate £10
Late evening meal rate £15


Where should you pay tax? (Statutory Residence Test)

Flugzeug fliegend

Historically some of the key cases related to Pilots.

Shepherd v Revenue and Customs Commissioners [2007] BTC 426, [2006] EWHC 1512 (Ch)

A BA pilot had a home in Cyprus and spent 80 days in the UK (well below the 183 day test) in 1999/2000. However, he had ties to his former matrimonial home in Berkshire and the UK was his base for international flights, HMRC won the case on the basis that he had not ‘left the UK’.

Grace v Revenue & Customs [2008] Spc 663

Mr Grace was also a BA pilot, he claimed to have relocated to South Africa. Mr Grace won his case because he was set out the facts in a way that convincingly showed his links to his new country of residence. Although subsequently the outcome was reversed.

Gaines-Cooper Case

Robert Gaines-Cooper was a Multi Millionaire, based in the Seychelles but subject to the UK tax because of family ties

These cases demonstrate the problems of deciding residency, so on the 6th April 2013 a new Statutory Residence Test was introduced.

This test is relevent not only to Aircrew but also to:

  • Ships Crew
  • Lorry Drivers
  • Coach Drivers
  • Sales People
  • Travel Industry

UK ties are likely to be a key issue:

  1. Family Tie – Relevent relationships include Spouse, Child under 18, Common Law partner resident in the UK. However, Children in Full Time education are ok provided they don’t spend more than 21 days in the UK outside of term time.
  2. Accomodation Tie – A property in the UK where they can live for 91 days a year or 16 days if its owned by a close relative.
  3. Work Tie – Work in the UK for at least 3 hours a day for 40 days a year
  4. 90 Day Tie – Spend more that 90 days in the UK in this tax year or the previous tax year or the year before that
  5. Country Tie – the midnight test for the greatest number of days

On the positive side at least HMRC have been very specific in their guidance, these are are very specific tests!



Rent a Room and earn up to £4,250 tax free

You can receive up to £4,250 a year tax-free (£2,125 if letting jointly) by letting furnished rooms in your home. This is known as the Rent a Room scheme.

It doesn’t matter how much you earn from other sources – you still get the full tax-free amount.


In the current economic climate renting a room is becoming an increasing popular method for boosting income and there has been an increase of 52% in the number of new homeowners taking in lodgers in the past two years.

On average UK room Rent is £406 per month rising to £717 in London.

Accroding to www.spareroom.co.uk

So this could well be worth considering if you need extra cash.



HMRC get tough on Travel and Subsistence

Many employees claim travel and mileage expenses:

Travel expenses that qualify for relief

You can get tax relief on the necessary costs of business travel like:

  • business mileage allowances for cars, cycles, motorcycles
  • public transport fares
  • hotel accommodation
  • meals
  • tolls
  • congestion charges
  • parking fees
  • business phone calls, fax or photocopying costs

But you can’t get tax relief for things that aren’t directly related to the business journey – like your newspaper or private phone calls.

Even if your employer doesn’t pay you the expenses you can still claim tax relief



Temporary Workplaces and Working from Home

The HMRC rules are set out at http://www.hmrc.gov.uk/manuals/eimanual/eim32000.htm

There is a 24 month rule for a temporary workplace and examples of working from home, these situations are common to Construction Workers, Agency Staff, Consultants, Drivers and Owner Managed Businesses where their home is their office.

Most people have been quick to assume that all their mileage from leaving home is business mileage and they feel entitled to claim for drinks and meals whilst working away from home, many businesses even agreed dispensations for meals of £5 to £10 with HMRC so they didn’t need receipts.

Some organisations tried to use Salary Sacrifice to swap salary for expenses to reduce PAYE/NI.


Specialist recruiter Reed has spoken of its ‘extreme disappointment’ after losing a £158million battle with the taxman over footing the travel and subsistence bills of temporary job candidates.

Dished out by the staffing company’s agents to 500,000 temporary workers between 1998 and 2006, the daily payments covered lunch – up to £6, and commuting – up to £11.45.

They were meant to be part of a salary sacrifice arrangement – where temps forego some of their salary for such perks, but it has emerged that no real agreement was in place for the six 12-month periods to 2006.

This is because HM Revenue & Customs has successfully argued that the employed temps were engaged under a series of job-by-job contracts and not, as Reed says, under a contract that continued (as an employment contract) following the end of an assignment.


It’s not just REED

Take a look at this Blog on Accounting Web http://www.accountingweb.co.uk/anyanswers/self-employment-travel-and-subsistence-issue-compliance-office

This Blog is about a construction worker working 200 miles from home and claiming travel, accommodation and subsistence. HMRC are seeking to disallow these expenses.

Do you have any advice or comments to share?

Has your business been affected by this issue? What happened? What were circumstances? How did you ensure compliance with HMRC rules?