Self-employed daily food allowance
What do you mean by Self-employed daily food allowance?
Did you know that if you're self-employed, you would be able to get some of your food expenses reimbursed? It is a food allowance offered by HMRC where self-employed people can claim their daily food expenses. As a self-employed person, you can claim daily food allowance as a tax relief on your Self Assessment tax return from HMRC.
What do you mean by a Self-employment?
Self-employment is a situation where in which an individual is working for himself rather than working for an employer against monthly salary or wage and although various agencies see and define self-employment in their own way, generally self-employed people includes sole traders, contractors, director of a limited company or those having partnership in the businesses and this term is often misunderstood as being a business owner, both are different situation, where in the former one, the person is working and involved in day-to-day operations of the company whereas in the later case, he is the person who owns the business but does not work and involved in the day-to-day company operations. As per 2016 statistics, there are approximately 14 million self-employed workers in the United Kingdom and UK law allows them to work as a sole trader or as a partner in a limited liability partnership, but not through an incorporated or unlimited liability company and thus there are various types of self-employment such as:
- Independent contractors: Independent contractors are type of businesses or individuals who are hired to deliver specific jobs or services and get paid in accordance with the service they have delivered. Since the independent contractors are not counted as employees of the company they have delivered their services to, UK law refrains from both claiming and receiving employment benefits. Example of independent contractors includes advocates, doctors, lawyers, accountants etc.
- Sole-traders or proprietors: Sole proprietors are people who own and run unincorporated businesses and in case of partnerships, it involves at least two or more people and often hires a small number of employees in order to run day to day operations.
Why most of the people are taking self-employment route?The reason why most of the young generation is taking self-employment route is because of its numerous advantages, such as:
Being self-employed means taking on risks and costs that you don’t have when you are working for someone else and it allows you to have certain allowable expenses such as:
- Accommodation: If you have rented out a space to conduct your business, UK government allows you to deduct the amount you pay for its rent. Along with the rent you pay for the space, you can also deduct the cost of equipment's you have hired, if any.
- Travel costs: Travel costs including hiring of vans or cabs including train, bus, and plane or taxi costs as a part of your travel costs and is an allowable expense. Travel costs for the self-employed are a bit different from those who are operating through a limited company.
- Health insurance premiums: You can deduct your health insurance premiums as a part of expenses and can be claimed.
- Publications and Subscriptions: If you have subscribed for specialized magazines, journals and books directly related to your business, and then the cost related to it can easily be claimed. For example, as a restaurant owner, if you have subscribed for a daily newspaper then it is not sufficient enough to be considered a business expense, however, if you have subscribed to “Nation’s Restaurant News” in order to understand and give a boost to your business, then you can claim its cost and it comes as a deductible and allowable expense.
- Interest: Any interest on a business loan from a bank is an allowable expense and thus a tax-deductible business expense. However you have to make sure that credit card purchases and applicable interest is not a tax-deductible.
- Meals: Food allowance for self-employed was not allowed earlier because HMRC was of the view that everyone must eat in order to live and thus it was not an allowable expense but later on this was abolished and now you can easily claim your food allowance too.
What is the self-employed daily food and drink expenses?
Being a self-employed, you are allowed to include your food and drink bills as allowable expenses, provided that the expense is done while you are on a business trip. However, you cannot claim the same if the food you have indulged in a lavish or extravagant one and HMRC allows you to deduct 50% of your meal’s actual cost in case you have saved the receipts and 50% of the standard meal allowance if you have the records of the time, place and business purpose of your travel but not your actual meal receipts.
The rules applicable on meals i.e. food and drink is similar to that of travel expense i.e. the travel must be allowable and qualify as business travel i.e. you must be away from your workplace and thus eating your lunchbox at your desk does not qualify as allowable expense. One of the allowable scenarios of food or meals claim would be if you are staying away from home overnight to work the next day in order to conduct the business and thus in order to claim self-employed daily subsistence allowance as an allowable expense, it must meet below mentioned conditions:
- The expenses incurred on foods and drinks must be during your business travel only and
- You travel to the place or the location occasionally and not on regular basis as a part of your business.
- You stay overnight on a business trip.
HMRC has reviewed it policy of food allowance for the self-employed and has now included the traders who don’t use hotels such as cab or taxi drivers who sleep in their taxis and thus they can also claim the cost of their meals even if they are not claiming the cost of accommodation, because they are not using one. Also, HMRC has incorporated situations where you are staying with your friend while travelling but having foods and drinks outside. Claiming for food and drink expenses is a tricky situation because as per HMRC, you can only claim back the expenses which are wholly and exclusively for the purpose of trade and just to add on the complication, there are various rules applicable to it depending on if you are a sole trader or limited company. HMRC introduced an advisory system of benchmark scale rates in order to list out allowable business subsistence expenses, such as:
It is not a hidden fact that HMRC is more generous towards the employees than those who are self-employed when it comes to food allowance and in former case; you may have some meals as a part of your employment package so you need to be very clear of your status. In order to claim the food and drinks expense, rather than itemizing each and every item of your food bill, it is always better to add a cumulative figure or a single figure for the total food bill. However even if you enter a single figure, you still need to work out all your expenses accurately. Also you should also keep receipts of the food and drinks bill. To inform the HMRC, you can either use the short version of the self-employment pages of the tax return (SA103S )in case your turnover is within the declared threshold of £85,000 for the year 2017/18, provided no other circumstance is available and if the annual turnover of your business is more than £85,000, then you will be required to show your actual expenses in the self-employment (full) pages. You can also use the self-employment full version of supplementary pages SA103F.
Frequently Asked Questions
Can I claim food allowance when self employed?
Yes, you can claim back money as food allowance when self-employed only if you're able to prove it as a business expense.
How much meal allowance can I claim?
As per the HMRC rates, the maximum meal allowance you can claim for travel within the UK are as follows -
Minimum journey time Maximum meal allowance £5
5 hours £5
10 hours £10
15 hours (and ongoing at 8pm) £25
Is food and drink an allowable expense?
Despite the fact that you 'need food and drink to live,' HMRC believes that you're only purchasing that specific meal in that specific location because you're on a business trip. It's an extra addition to your regular living expenses, and it's frequently more expensive than you'd expect. As a result, it's deductible as a business expense.
What receipts to keep when self employed?
You must keep proof of all your goods and stock receipts. Checkbook stubs, bank statements, Invoices, till rolls, and bank slips.
What qualifies as a business meal expense?
If the meal is directly related or associated with the conduct of a trade or business, it qualifies as a business meal expense and can be claimed back as deduction.
What can you claim on expenses?
you can claim business expenses such as office costs (stationery or phone bills), financial costs (insurance or bank charges), travel costs (fuel, parking, train or bus fares), business premises cost (heating, lighting, business rates), home office, meals, vehicle use, health insurance premiums, Interest etc.
How long do self employed need to keep receipts?
You must hold records for at least 5 years after the submission deadline of 31 January. HMRC (HM Revenue and Customs) can examine your records to ensure that you are paying the correct amount of tax.
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