Travel & subsistence expenses for sole traders & partnerships
One of the most troublesome areas for expense claims relates to what the self-employed can claim as travel and subsistence expenses.
The overriding rule is that you can only claim a deduction for expenses that have been incurred wholly and exclusively for your business.
What this means in practice is where travel costs are incurred partly for business and partly for pleasure, as long as you are able to specifically identify your business journeys you will be able to claim a tax deduction for these costs.
You should remember to keep a detailed record of your business mileage and any related expenses so you can support any claim if this is ever queried by HMRC.
What is business travel?
If you have a permanent base (for example an office) that is separate to where you live then any travel between home and that base is regarded as ordinary commuting and will not be tax deductible.
If you carry out your business from home then you should be able to claim the cost of travelling between your home and where your work is carried out.
However, be aware! HMRC are most likely to challenge the position where they suspect you ‘artificially’ claim to operate a business from home by setting up an office there, though in reality you carry out the vast majority of your work at a different location regularly.
Given their success at tribunal (notably the Noel White and Dr Samadian cases for those of you who like to read up!), HMRC are paying particularly close attention to the matter of travel expenses and taking a more bullish attitude.
Think very carefully about any ‘home to office’ claims you are currently making in your business accounts.
Obviously no two cases are alike, however make sure you have sufficient evidence to support the fact that your business operates from home.
For example are your business records kept and written up at home? Do you keep you tools and equipment there?
As a sole trader or partner you have two choices for how you claim motor expenses - you can claim a proportion of your actual car costs each year based on your business mileage or you can claim a flat rate per business mile. You can read more about both these methods in our blog here.
Other travel expenses
In addition to expenses relating to your car running costs, you can also claim any parking fees, motorway tolls and congestion charges if these relate to business trips. You can also claim VAT on these expenses as long as they are business related.
You can also claim tax relief for interest on any loan specifically used to purchase your car or van, though this will need to be restricted to reflect private use.
You can also claim bus and train fares incurred in the course of travelling for business.
Hotels & Subsistence
As a general rule the cost of your food and drink incurred away from your place of business during the day time (and where an overnight stay is not involved) cannot be claimed as a tax deductible expense.
This is on the basis that everyone must eat to live and so food and drink isn’t incurred wholly and exclusively for your business (this precedent was established many years ago by the Caillebotte v Quinn tax case).
(Please note: the position is slightly different if you are an employee – see our separate blog).
HMRC do accept that extra allowable costs for food and drink may be incurred where either the nature of your business is itinerant (for example a construction worker who works in a different location every week) or where you make an occasional business journey outside of your normal pattern (for example your business is based in Poole and you pay for breakfast on the way to attending a business conference in London).
Where you undertake a business trip which requires you to stay away from home, the hotel accommodation and reasonable overnight subsistence costs will be tax deductible.
However, where your business base is away from home and you pay for overnight accommodation and subsistence simply to allow you to be at or near where your business is situated this expenditure will not be tax deductible.
If it is necessary for you to take a business trip and stay in a hotel overnight, be sensible as HMRC might consider receipts for champagne paid for at Spearmint Rhino excessive!
If you'd like to see what other expenses you can claim take a look at our blog here.