TRAVEL AND SUBSISTENCE EXPENSES HMRC
What are Travel and Subsistence Expenses?
Travel and Subsistence expenses refers to the expenses an employee incurs during his official visits or business travel, which includes expenses on travel, meals, hotels, sundry items like laundry and other miscellaneous expenses.
If you are working for an organization, your employer may refund or reimburse these costs to you on producing appropriate bills corresponding to each expense header. However, you, as an employee, are entitled for a certain amount based on your rank or designation and you should produce an itemized list of expenses incurred accordingly. In case the expenses under various headers are relatively higher than what your entitlement is, then you would end up paying the balance amount from your own pocket.
If you are an employer, you would need to pay travel costs to your employees and have to pay certain tax, national insurance and reporting obligations to Her Majesty’s Revenue & Customs (HMRC). Travel costs of your employees might cover the following:
- Travel costs depending on your mode of travel I.e. train tickets or flights tickets etc.
- Reimbursement of travel costs.
- Accommodation Costs, in case the employee has to stay overnight at some location.
- Meals and other subsistence expenses like parking charges, tolls, congestion charges etc.
However, you must keep in mind that any expenses that you claim must solely be a part of your business journey and as per HMRC’s definition of HMRC, a business journey is a journey which you take as a part of your job and it is not your daily usual commute to and from your home and workplace and it demands you to travel to different places as a part of your job.
What All You Cannot Claim Under Travel and Subsistence Expenses?
If your job description requires travelling from one place to another, you are entitled to claim the expenses which you have incurred during travelling, however there are certain costs or expenses which do not fall under travel and subsistence expenses and thus you cannot claim these costs from your employer, such as:
Your ordinary daily commute from your home to your permanent workplace, irrespective of number of hours you spend daily while travelling.
However, in case an employee has to go for a business meeting at client location which is 40 kms from his place of stay and his permanent workplace is at a distance of 10 kms from his place of stay. So, if the employee has to report to the office and then go for the meeting, then the entire 50 kms are claimable and not just the extra 40 miles.
- If you have purchased your personal vehicle and are paying certain loan on it - this expense will not come under Travel and Subsistence Expenses and thus you cannot claim for the same.
- Any capital allowance to buy a vehicle - This does not fall under travel and subsistence allowance and thus cannot be claimed.
The basic understanding of travel and subsistence expenses is quite simple, however their tax treatment is not so simple and as a matter of fact, they are a bit complicated. For a general and basic understanding, as per HMRC, employees are entitled for tax free reimbursements for a business journey, however, if you are an employer, you can choose to either pay the employee tax free or the employee can opt for tax-relief on any shortfall through their tax return.
Qualifying and Non-Qualifying Costs: While you apply for travel and subsistence allowance, there are certain costs which are claimable, also called as Qualifying Costs whereas there are certain costs which are non-claimable, also called as Non-Qualifying Costs.
Types of Qualifying Costs:
Mileage Allowance: Under this allowance, usage of private cars, vans or motorcycles for work is considered and HMRC has declared a fixed amount under this allowance which is considered as an approved payment and only this approved payment is claimable. However, if you have incurred over and above the approved payment, you have to pay the difference amount on your own and the balance amount will not come under tax rebate. However, in case your employer does not pay you the approved amount or your allowance is taxed; in that case you claim the entire amount, which you have spent on your travel.
VAT on Mileage Allowance: In case, your company is VAT registered and does not use flat rate VAT accounting, it can claim back the VAT on the fuel element of the mileage allowance.
If you have a car with a 1500cc petrol engine, the fuel portion of the mileage rate is 13p per mile (as at June 2016).13p per mile represents the VAT inclusive amount ie 120% (100% plus 20% VAT). So to work out the VAT included, you need to do the following:
13p / 120 * 20 = 2.2p. So you can claim 2.2p in VAT.
But beware, your company will need to show HMRC on request that it has enough VAT receipts to cover the claim.
So for example, if 1,000 miles is claimed in the VAT period, then you will have claimed £22 in VAT (2.2p x 1,000). The fuel receipts will therefore need to total £130 (the VAT inclusive amount - £22/20 *120).
- Temporary Workplace: A workplace is considered as a temporary workplace if you spend less than 40% of your work time there and have spent less than 24 months at the workplace. In case if it applies to you, you can claim the costs incurred at your temporary workplace from your employer.
- Permanent Workplace: Usually, your daily usual travel from your home to your permanent workplace is not considered as a qualifying factor to claim travel and subsistence cost, however there are certain exceptions to this rule, such as:
- In case, if you have to undertake frequent journeys from your place of stay to a different place in order to meet clients or fulfilment of your job duties, you can claim the expenses incurred in the travel, provided the journey or travel is different from your daily journey from your place of stay to your workplace.
- If your job profile demands an emergency call out service, like in case of general practitioners, then you can claim the expenses incurred while doing so. For example: If you have to give certain urgent medical advice to your client over the phone while you prepare to leave for the work, you can claim the cost.
- Travelling is an integral part of your job: In case your job profile demands extensive travelling and if traveling to various locations is an integral part of your job profile, you can claim the expenses incurred while traveling. However, you have to ensure that the place where you travel more frequently should not fall under the category of your permanent workplace.
Hotels and Subsistence Expenses:
Any expenses you have incurred on accommodation, food, drinks and any sundry charges like laundry etc are tax deductible and HMRC might question your bills in case they find it inappropriate or exorbitant in nature. For example, if you have submitted a bill for dinner with a client at The Ivy Restaurant washed down with Crystal Champagne.
For a better understanding, HMRC has published a list of scale rates for subsistence payments to the employees and if claims are paid as per the published scale rate, the payment will be tax and National Insurance free. The published rate are as follows:
- Breakfast Rate: Up to £5 is a tax free claim against the breakfast, however, the point worth an attention here is that it is applicable and valid only if you had your breakfast before 6 am and you are leaving your place of stay much before than the normal usual hours.
- One Meal Rate: In case you are away from your place of stay and workplace for more than 5 hours, then you can be paid one meal rate up to £5.
- Two Meal Rate: In case you are away from your place of stay and workplace for more than 10 hours, then you can be paid two meal rate up to £10.
- Late Evening Meal Rate: In case you leave your work place after 8 pm i.e. much later than the normal usual finish hours.
Travel and Subsistence Cost as an Employer:
As an employer, you have to pay/reimburse your employees travelling and subsistence costs and in this case, you have certain tax, National Insurance and reporting obligations to follow and these includes cost for providing travel, reimbursing travel, accommodation in case your employees have to stay overnight away from their place of stay and subsistence costs like meals, laundry charges etc. And in case, your employees are using public transport, then as an employer in order to cover their public transport costs, you have, yet again, certain taxes, national insurance and reporting obligations to take care of.
In case, your employees are using public transports, its costs include the following:
- Season tickets provided for the employees.
In this case, you, as an employer, must inform the HMRC about the costs of the season tickets by filling up the cost on the form P11D. The cost of season tickets need to be added to the full earnings of the employees and Class 1 National Insurance (not the PAYE Tax) should be deducted through the payroll.
- Season tickets cost reimbursed to the employees.
In case, you are in an arrangement where your employees buy their own tickets and you reimburse its cost or you cover the cost of the season tickets either by an additional allowance or in form of increased salary. This is counted as an earnings so as an employer, you need to add the cost to the employees total earnings and then deduct the tax and Class 1 National Insurance through the payroll.
- Loans made to employees to buy season tickets.
In case, you have given any loan to your employees to buy season tickets, it should be considered like any other loan given to the employees because as an employer, if you are providing loans to your employees or any of their close relatives, you have certain National Insurance and reporting obligations. However, there are certain loans like Beneficial Loans, which are interest free.
- Contributions to subsidized or free public bus transport.
However, in case, as an employer if you are contributing towards a subsidised or free public bus transport, you neither have to report anything to the HMRC nor you have to pay any tax or National Insurance on these costs. For example, if you have contributed in financing a bus route in order to reduce the cost of travel for your employees from their place of stay to the workplace, you are under no obligation to pay any tax or national insurance number or to report anything to HMRC.
Changes to Travel and Subsistence Expenses:
It was in the summers of the year 2015 when HMRC declared its view on Employment Intermediaries and Tax Relief for Travel and Subsistence and the consultation was basically to understand who is eligible for travel and subsistence expenses and the target people were those who are employed through a third party or an intermediary such as an agency, umbrella company or limited company. However, the changes implemented post the consultation did not affect sole traders and employees and the new rules were applicable from 06th April2016.
After new rules were applicable post 06th April 2016, claiming travel and subsistence expenses under HMRC has become more tedious, especially for those who are employed through an intermediary body like an agency, umbrella company or limited company. At times, you might spend quite a small amount on your business travel and subsistence expenses and given the complexities of the reimbursement process, you might be wondering if it’s even worthwhile to undergo such a tedious process. However, not every time your expense amount is going to be a small one and thus you need to put certain process in place so that your claims are well taken care of and they are filed and reimbursed well in time.
And as they say, it is always better to channelize your energy and focus towards something you are good at while allocate rest of the work to those who are good at it. So, when it comes to hiring an established accounting firm who has not only years of experience but also has a well read and experienced team of chartered accountants and professionals, first name which comes to the mind is DNS Accountants.
They, as an accounting organization, have years of experience in accounting field and with the help of their experienced team of chartered accountants and other professionals, they have been helping individuals ( sole traders) employers and employees in timely reimbursement of their travel and subsistence expenses cost and while they do so , they ensure that all obligations toward tax, reporting to HMRC and National Insurance is timely taken care of.
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