What is the subsistence allowance for contractors?
It’s a regular part of many contractors’ lives to travel away from home for business related purposes. This travel could be to and from a client’s workplace in order to complete work, or making journeys elsewhere which are directly related to the work being done for the client. In some cases an extra early start, a late finish, or staying away from home overnight may also be needed in order to fulfil the client’s requirements.
During these times food and other subsistence expenses will be incurred – after all we’re human! Fortunately, the taxman recognises these subsistence costs as legitimate allowable business expenses for Limited Company contractors. HMRC have a number of subsistence claim options available which may be applicable to you and your business. It pays to take a look at these and make sure you’re claiming all that’s due to you.
Making a claim for subsistence expenses
For subsistence claims to be valid the following must apply:
- The journey itself must be a legitimate business journey
- The money must actually have been spent
- Receipts must be available where required
There are two options for making UK subsistence claims:
Exact expenses incurred claim
You must keep records of all receipts to make this type of claim. You can then claim these expenses from your employer i.e.: your own Limited Company. The amounts must be entered for your company each year onto a Form P11D – Return of expenses, payments and benefits. You will then need to add these amounts onto your personal P11D for your yearly tax return as allowable expenses. The exception is where you have an HMRC dispensation which allows your company to report the amounts without you personally having to on your own return.
Flat rate claim
This is also known as a ‘scale rate’ or ‘benchmark’ claim. HMRC have published rates for certain subsistence items which they will accept without the need for receipts to prove the claim. You do need to ask HMRC that you wish to use the subsistence scale rates before you start claiming.
The current rates for UK subsistence are:
- Breakfast rate: Up to £5.00 per day can be claimed for the cost of breakfast away from home where the contractor leaves much earlier than usual or before 6:00am.
- One meal rate: Up to £5.00 per day can be claimed for the cost of a meal where the contractor is away from home for at least five hours.
- Two meal rate: Up to £10.00 per day can be claimed for the costs of meals where the contractor is away from home for at least 10 hours.
- Late evening meal rate: Up to £15.00 per day can be claimed for the cost of evening meals which the contractor would usually have a home. This applies where a contractor has worked a full normal day and leaves after 8:00pm.
If you are away overnight the daily subsistence rates do not apply. Instead, you can apply the overnight rules which allow actual hotel costs to be claimed in addition to ‘Incidental Overnight Expenses’ at HMRC rates. These allow for personal items such as laundry and newspapers. The current rates for these are:
- £5.00 per night for overnight stays in the UK
- £10.00 per night for overnight stays outside the UK
Incidental Overnight Expenses don’t need to be included on a dispensation. Also, if they are in line with the above rates, they don’t need to be reported on your P11D.
For more detailed information on this topic, download the Intouch Guide Subsistence Claims for Contractors.
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.