Travel expenses are a routine part of life for many contractors, and the ability to claim can have a significant effect on the amount of tax you pay. Like many aspects of tax law, the rules surrounding travel expenses can appear complex and arbitrary, and it’s vitally important to claim correctly.
How does IR35 affect my travel expenses?
If you’re inside IR35, the vast majority of business journeys are classified as “normal commuting” and as a result travel and subsistence (T&S) expenses are not allowed. This includes costs for accommodation, parking and meals, as well as the direct cost of travel.
What is the 24-month rule?
Assuming you’re outside IR35, most client sites you attend will be classed as temporary workplaces, which means T&S expenses are allowed. However, a workplace is no longer classed as temporary if you work there, or expect to work there, for more than 24 months. As soon as you expect to work at a particular location for more than 24 months, travel to that workplace is classed as normal commuting.
When you start work at a new location, your journey to work has to be “significantly different” in order to restart the 24-month clock. Working for two different clients in the same area may not be enough.
If you work at more than one location, the 24-month rule applies once you work, or expect to work, at any single location for more than 24 months and for at least 40% of your time.
If you’re unsure about how the 24-month rule affects you, it’s best to discuss it in detail with your accountant who will be able to advise on your particular circumstances.
How much can I claim for subsistence?
Generally, if you’re allowed to claim for travel, you’ll be allowed to claim for subsistence as well, as long as you buy a meal while you’re away from home working. You can choose whether to use the benchmark scale rates set by HMRC, or to claim what you actually spent on food and drink.
If you’re using the scale rate, the amount you can claim depends on how long you were away from home.
Time away from home
Benchmark subsistence rate
More than 5 hours
More than 10 hours
15 hours (and ongoing at 8pm)
If you’re using the benchmark scale rate, HMRC don’t need evidence of how much you spent, but you may be asked to prove that you incurred a cost for food and drink. It’s advisable to keep at least some of your receipts so you have this evidence if required.
If you opt to claim for the amount you spent rather than using the benchmark rates, you’ll need to record every expense and keep all your receipts.
Is it better to claim mileage, or get a company car?
You’ll pay tax on your company car as a benefit in kind, and how much you pay will depend on the list price and CO2 emissions of the car you choose. For example, if your company pays for fuel as well, a £30,000 car with CO2 emissions of 106g/KM would cost a higher rate tax payer £21,829.35 in tax over three years, assuming no increases in tax or changes to BiK rates. If you sold it after 3 years the sale price would be profit for your company, which would attract corporation tax. If your only consideration is the cost, you may well be better off buying the car yourself and claiming mileage when you travel for work, though obviously the cost would be lower if you chose a less expensive car with better CO2 emissions.
Again, we’d advise you to talk it over in detail with your accountant before making any decisions.
What if the car was a van?
This would considerably reduce the cost. A company van would cost a higher-rate tax payer £7,451.37 over the same 3-year period. However, it isn’t enough to buy a car and call it a van. HMRC defines a van as “A vehicle of a construction primarily suited for the conveyance of goods or burden (excludes people)”. The important detail is how the vehicle is constructed, not how it’s used, so if it was made as a van, it counts as a van regardless of how you use it.
Does a parking fine count as a travel expense?
This sometimes causes some confusion, because parking charges can be claimed, along with other incidental travel costs like tolls and congestion charges. However, if you receive a fine for parking illegally this does not count as a travel expense, even if it was incurred while you were parked on business.
When travelling abroad, which exchange rate should I use to calculate my travel expenses?
Your expenses claim will be in pounds, but you can expect to incur costs in local currency. Most benchmark rates are published either in local currency, or in Euros or US dollars. You should use the exchange rate that was effective on the day the expense was incurred.
Can I combine a business trip with a holiday?
Obviously, you can, but it can make your expenses claims more complicated. Any expense you claim has to be incurred “wholly, exclusively and necessarily” in the course of your business, so anything that you get a personal benefit from cannot be claimed.
Imagine you’re based in London, and travelling to Rome for two days of meetings with your client. Your company pays for a return flight, for a hotel and for subsistence for the two days. You decide to stay an extra of day to take in the sights and go to a football match.
Because of the additional day, both your flights and accommodation costs include an element of personal benefit, which means you can’t claim them. However, if you stay in a different hotel for your extra day and pay for the outward and return journeys separately, you could claim for the outward flight and the two business days in the hotel, and pay for the rest yourself.