Accommodation costs for sole traders
Accommodation costs for sole traders can be tax deductible when the costs are incurred:
- Wholly and exclusively for the purposes of your trade or profession, or
- It there is a mixture of business and personal use you may be able to claim a specified proportion. Though this might prove difficult to argue with HMRC.
Which accommodation costs for sole traders are tax deductible?
For practical purposes tax deductible accommodation costs for sole traders fall into the following categories:
- Accommodation used as a workplace
- Accommodation used as a stopover when travelling away on business. Although unlike an employee you may struggle to justify this expense if staying with friends
- Accommodation used for any other business purposes - for example hiring a hotel venue to hold a business conference
Accommodation costs for sole traders will therefore only be allowable if you can prove a business purpose. Ordinary living expenses are not tax deductible.
What is HMRC's view on accommodation costs for sole traders?
Whilst HMRC's views have never been fully tested before the tax tribunals their likely position is as follows:
- They are likely to allow the cost of overnight accommodation on short business trips. HMRC will also accept claims for longer periods which relate to 'itinerant' workers (mainly site workers) or those who are in travelling professions. This could also cover accountants who are required to visit their clients(!)
- HMRC seem to regard accommodation lasting longer than six to nine months as too long to allow a tax deduction. They may attempt to deny relief for a longer stay on the grounds that the accommodation provides warmth and shelter. It is in effect ordinary living expenses (see above). This point was made by HMRC in the Tim Healy tax case. Though it was also mentioned by the tribunal that the length of stay does not necessarily preclude a tax deduction
Itinerant trades - accommodation costs for sole traders
Site based subcontractors will normally be allowed tax relief for accommodation costs because they are part of a group of workers termed as 'itinerant'. For example they are workers who necessarily move from site to site in search of work.
Typically those in the building sector (and many other trades and professions) will generally all qualify for tax relief for their travel and accommodation costs. However, it is unfortunate that there is no definitive list available from HMRC.
One final point to mention is that if work is based at one location over a long period then HMRC may deny relief. This is because in their view the trade will have ceased to be itinerant in nature.
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