Overseas Expenses Claims: Are they Tax Deductable?
Short trips abroad for business purposes
You can only claim tax relief for foreign travel paid for through your business if the trip has been wholly, exclusively and necessarily for the purpose of doing your job. There are no exceptions to these rigid rules:
- The trip must be taken wholly, exclusively and necessarily in order to do your job;
- Any other related expenses claimed must be incurred wholly, exclusively and necessarily in order to carry out your job.
When claiming overseas travel expenses, contractors / small business must be extremely careful about claiming foreign travel expenses and related expenses through the company. There are a number of areas that must be satisfied before doing so. First and foremost you must be able to provide proof that the purpose of the trip was work related and have documentary evidence to prove that your trip overseas was wholly, exclusively and necessarily for the purpose of performing your job. Some of the documents HMRC will require in relation to such claims are listed below:
- All expense receipts
- Evidence of how expenses were paid
- Itinerary relating to the business trip
- Schedule of clients / contacts you met; when and where, and the outcome
- Any contracts agreed following the meeting
- The contact numbers and details of prospective clients
- Email correspondence with prospective clients before and after the trip
- Details of the revenue raised as a result of the overseas trip
- Details of relatives and friends you met while you were on the trip
- Any places you visited while on the trip beyond those related to your work
You must be able to provide the documentation listed above in order to satisfy the claim, then and only then are expenses related to foreign travel allowable. Under UK law it is illegal to claim foreign travel-related expenses without documentary proof. If HMRC investigates your claim and disallows it, you will have to pay:
- The difference of the revised tax figure + interest + a penalty.
Using the flat rate scheme when you travel abroad
Providing you can prove that your business trip is legitimate against all the points listed above, then you may be able to claim foreign travel expenses without receipts, but you must still provide sufficient evidence that the purpose of the trip was work related and wholly, exclusively and necessarily for the purpose of performing your job. It is therefore imperative to keep all receipts related to the trip and copious records as listed above in order to claim these generous allowances.
When making legitimate business trips abroad you can claim the flat rate allowance for all foreign business travel and expenses. The HMRC benchmark scale rates for accommodation and subsistence expenses relate to a large number of foreign countries. These can be used to reimburse expenses such as accommodation, meals and travel in most regions and countries worldwide. Rates are quoted in the relevant currency, and the benchmark scale used must match the country you are visiting. For example Australia, Brisbane, the benchmark scale rate per day for accommodation and subsistence is set at Aus $148.00 (equal to just over £100, plus your day-, ten- or five-hour rate, plus you still get to keep your overnight subsistence allowance of £10).
It certainly is worth applying for the flat rate allowance for foreign travel for business purposes. To find out more visit the HMRC website.
Short trips abroad for training or study
Similar rules apply when claiming overseas travel expenses and related expenses through the company for study or training abroad. You must provide:
- Invoices for the course fee
- Provide evidence of how it was paid for
- Provide evidence of how long the course lasted
- Show evidence of the length of your stay
- Prove that the course was necessary in order to perform your duties better
- And provide all the receipts related to the claim.
Providing you can produce the evidence necessary a variety of training costs can be paid for through the company without triggering any tax liability. The exemption from tax applies equally to employees and office holders, and the location of the course is not relevant, it can be office-based or not; it can take place in the UK or abroad.
Remember, however, that the training or course of study must be directly related to the individual’s work: in statutory terms this means that work-related training tax-exemption can cover:
"Any activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which ... are likely to prove useful to the employee when performing the duties of the employment or a related employment."
The relief then extends to those skills that will qualify (or better qualify) the employee to perform those duties or a range of associated charitable or voluntary activities. Specifically, HMRC acknowledges that:
"Self tuition packages, computer-based training, distance learning, work experience or work placement and informal teach-ins are all acceptable, as are more formal classroom-based methods. It does not matter whether training is delivered internally or externally, or on a part-time or full-time basis."
The cost of training is reimbursable; even if the invoice is in the name of an employee or office holder he or she can be reimbursed by the company and the costs remain non-taxable. Travel and subsistence costs are also included if directly associated with the training. It is very important, however that the course or study period is directly related to your work. Here are a couple of examples:
A London-based IT consultant has a few French-speaking clients and believes that an intensive French course lasting one month in France will enable him to communicate more effectively and do a better job. Although this might be true, the IT consultant does not need French in order to carry out his actual job as an IT consultant, therefore, the expense of the course is taxable.
However, the same IT consultant wants to attend a course at Harvard University in the United States in order to expand his programming skills; programming is directly related to his actual employment and job description and, therefore, the course is eligible under work-related training. His travel from London to an airport in the USA, accommodation and subsistence are also allowable.
Travelling with your family or your spouse
In order for your family to be eligible for travelling expenses you must be absent from the UK working or on a course for a continuous period of over 60 days. "Family" includes spouse, children or a registered civil partner.
If your family member is accompanying you at the beginning of the period of absence, or visiting you while you are away, or accompany you on your inbound journey you must have been away for over 60 days.
Providing all the rules are met, the allowance could cover up to two outward journeys (from the United Kingdom to the overseas workplace) and two inward journeys (from the overseas workplace to the United Kingdom) in any tax year by each member of the employee’s family. The deduction only covers the travel costs of the family. Once the family arrives at the overseas workplace no deduction can be given for their accommodation or subsistence unless they have a specific duty to perform in relation to the trip (See Jim, below).
Example 1: Robert, who is ordinarily resident in the United Kingdom and an IT contractor with his own limited company, needs to go to Germany for eight months to carry out a job for his company. Robert’s wife accompanies him.
- The cost of Robert’s travel to and from Germany is tax deductible because Germany is a temporary workplace.
- The cost of Robert’s wife’s travel to and from Germany is also deductible because she can take two return trips under the over-60 days rule to see her husband in Germany.
- Robert’s accommodation and subsistence is also deductible as a necessary part of his travel. Robert’s wife’s accommodation and subsistence is not deductible.
Example 2: Jim, who is ordinarily resident in the United Kingdom and an IT contractor with his own limited company, needs to go to Japan for eight months to carry out a job for his company. Jim’s wife accompanies him.
- The cost of Jim’s travel to and from Japan is tax deductible because Japan is a temporary workplace.
- The cost of Jim’s wife’s travel to and from Japan is also deductible; under the over-60 days rule, but also because she speaks fluent Mandarin and will be useful as an interpreter, saving Jim’s company the expense of employing an interpreter.
- Jim’s accommodation and subsistence is also deductible as a necessary part of his travel and, in this case, his wife’s accommodation or subsistence is also deductable because she is carrying out a specific task that the company would otherwise have to employ someone to do.
Example 3: Dave, who is ordinarily resident in the United Kingdom and an IT contractor with his own limited company, needs to go to France for one month to attend a course directly related to his job. Dave’s wife accompanies him.
- The cost of Dave’s travel to and from France is tax deductible because he is attending a course relating directly to his job of work.
- The cost of Dave’s wife’s travel to and from France is not deductible, as Dave will be away for less than 60 days.
- Dave’s accommodation and subsistence is also deductible as a necessary part of his travel, but his wife’s is not on two counts: one that Dave is going to be away for less than 60 days and also because Dave’s wife will play no practical part in his role as a student in order to improve his ability to do his job.
Make sure you are aware of the overseas travel expenses rules, which is a generous incentive providing that the expenses claim is legitimate. You can only claim tax relief for work- or study-related foreign travel if the trip has been wholly, exclusively and necessarily for the purpose of doing your job. There are no exceptions to these rigid rules, and if HMRC investigate, you could end up with a very expensive penalty.