Staying away from home for contractors – travel and accommodation expenses

Travel and accommodation expenses

Some contractors travel from home to their client’s workplace incurring UK or overseas travel and accommodation expenses in doing so. For contractors set up as a Limited Company and working outside IR35 many of these expenses will be tax deductable.

 

What defines an allowable travel expense?

Travel expense allowances are based on the premise that you are travelling from home to a ‘temporary workplace’ as defined by HMRC’s ‘24 month rule’. If you become aware that you will be working in the same location for longer than 24 months you won’t be able to claim for any travel expenses as this will be a ‘permanent workplace’ under HMRC rules.  Providing that you don’t exceed the 24 month rule, you can claim your travel expenses, as long as these comply with the HMRC definition of being incurred ‘wholly and exclusively’ to perform your role for the purposes of the contract.

 

What expenses can be claimed?

Travel

You can claim for any reasonable mode of transport, for example: train, bus, airplane fares providing these costs are solely for your business.  Plus if you complete any mileage in your personal vehicle, you can also claim HMRC’s set mileage rates.  Please bear in mind, that for any travel costs, you will need to keep copies of the receipts for your business records.

Accommodation

If you are staying away for your business on your contract, you can claim for the cost of hotels and of renting accommodation.  This is providing that you have your own private residence elsewhere and are only staying in the hotels or renting accommodation solely for your business.

Subsistence

You can claim for receipted evening meals, but only if there is corresponding accommodation to prove your overnight stay. You can claim for subsistence providing that you are travelling to a temporary workplace and the travel is incurred for the business.

The HMRC’s benchmark scale rates that apply from 6 April 2009 are as follows:

Description Amount (up to)

Breakfast rate £5 One meal (5 hour) rate £5

Two meal (10 hour) rate £10

Late evening meal rate £15

Breakfast rate – The rate may be paid where an employee leaves home earlier than usual and before 6.00 am and incurs a cost on breakfast taken away from his home after the qualifying journey has started. If an employee usually leaves before 6.00am the breakfast rate does not apply.

Late evening meal rate – The rate may be paid where the employee has to work later than usual, finishes work after 8.00pm having worked his normal day and has to buy a meal before the qualifying journey ends which he would usually have at home.

The breakfast and late evening meal rates are for use in exceptional circumstances only and are not intended for employees with regular early or late work patterns (see examples at EIM05232).

One meal (5 hour) rate – The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.

Two meal (10 hour) rate – The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or meals.

Benchmark scale rate payments must be limited to three meal rates on one day or 24 hour period. A meal is defined as a combination of food and drink and would take a normal dictionary meaning. Where employees are required to start early or finish late on a regular basis, the over 5 hour and 10 hour rate, whichever is applicable, can be paid provided that all the other qualifying rules are satisfied.

 

Incidental expenses

Incidental expenses are allowable only if you are staying away from home.  You can claim the round sum allowance for each night you are away.

HMRC allows claims for the cost of items like laundry and business magazines. The rate is up to £5/day in the UK and up to £10/day outside the UK with no receipts required.

The basic rules are fairly straightforward. However, complications can arise in the correct interpretation and calculation, at which point it is advisable to refer to your contractor accountant to do these for you.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

The 24 month rule and how it affects contractor travel expenses

The 24 month rule and how it affects contractor travel expenses

Contractors are allowed to claim travel expenses through their Limited Companies, if the travel is related to a ‘temporary workplace’, which for contractors will mean their clients’ workplace.  The 24 month rule relates to the HMRC definition of a ‘temporary workplace’. If you are aware that you will be travelling to the same workplace for more than 24 months, this workplace becomes a ‘permanent’ workplace.  From then on any costs associated with travelling to a ‘permanent’ workplace must not be claimed as an expense.

 

How the 24 month rule works

The key points are:

  • A contractor who works at the same location for more than 24 months cannot claim travel expenses once they have passed the 24 month date.
  • The minute the contractor is aware that their contract will continue beyond 24 months they should stop claiming travel expenses.
  • A contractor cannot claim any travel expenses at all – for the entire duration of the contract – if they know from the beginning that they are likely to be working for the client for more than 24 months.

If you are un-sure of where you stand with your own travel expenses, speak with your accountant to clarify matters.

 

The 40% rule

Many contractors have quite flexible working arrangements with their clients, meaning they are spending time at several different sites over the course of a month. For these contractors the HMRC’s ‘40% rule’ applies. Under this rule, if a contractor spends most of the week, say three days, at one site and only two at another they can claim travel expenses only up to the point that they are aware that they will be spending 40% of their time at one site.  Once they are aware, they cannot claim tax relief to and from the site they spend three days a week at. However, if they make individual journeys to different locations they will be able to claim for these. The 24 month rule calculation includes time even if there has been a gap of a month or two between contractor visits to the site. If a contractor returns to a site the total time spent should be calculated and the 40% rule used if applicable.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.