Back to Basics - Understanding Directors Travel Subsistence Expenses
Managing your time and company efficiently can be difficult and time-consuming as a director. However, while travelling for business purposes, it’s easy to overlook the importance of correctly claiming subsistence and travel expenses. To help you navigate these expenses and avoid any potentially expensive misunderstandings, we have prepared this quick guide to understand how directors' subsistence and travel expenses should be managed.
What Are Subsistence and Travel Expenses?
Subsistence expenses refer to costs incurred while you're away from your usual place of work, such as meals, accommodation, and other necessary out-of-pocket costs. On the other hand, travel expenses are related to the cost of transportation—whether taking a plane, train or using your vehicle for business purposes.
When Can You Claim Travel and Subsistence Expenses?
As a director, you can claim travel and subsistence expenses when the journey is for business purposes. This could include attending meetings, conferences, or visiting clients. However, it's important to note that these claims are only allowable when the travel is directly related to business-related activities, not personal travel, and not to your usual place of work.
What Expenses Are Allowable?
Travel Costs include public transport, airfares, train fares, and mileage if you're using your car for business. Remember, there are set mileage rates for personal vehicle use. Rates & Allowances Link
Accommodation: The cost of a hotel or similar lodging is allowable if you stay overnight for business purposes.
Meals and Refreshments in the UK: While travelling, meals can be claimed, but they must be reasonable and reflect only the subsistence required by your trip. You may also claim using the flat-rate per diem allowance, a simplified method of claiming meal expenses without keeping receipts for every meal. HMRC sets specific per diem rates based on the duration of your trip:
£5 per day if you’re away from your office for over 5 hours.
£10 per day if you’re away for over 10 hours.
£15 per day for evening meals when working late to after 8 pm.
Overseas Travel: Business trips abroad follow similar rules to domestic travel, but the rates for subsistence are adjusted depending on the country you visit. HMRC provides guidelines on allowable per diem rates for foreign travel, which vary based on the cost of living in the country you're visiting. This covers accommodation, meals, and incidental expenses while you are abroad. Ensure you consult HMRC’s overseas scale rates for the specific country you're travelling to, as these rates differ significantly from domestic travel.
You can also claim travel-related costs like international flights, visa fees, and travel insurance, provided they are necessary for the business trip. Currency exchange fees and international mobile phone charges are also allowable if they are directly related to business. Travelling outside the Uk
5. Incidental Costs: This might include parking fees, tolls, or even a modest tip at a restaurant. Keep in mind that these must be directly related to your business trip.
Record Keeping Is Crucial
It's vital to maintain accurate records of your travel and subsistence expenses. This includes keeping receipts, logs of business trips, and explanations for why each trip was necessary for the business. While per diem allowances simplify the meal process, you still need to keep evidence of the time spent travelling and the purpose of the trip. This is especially important for overseas travel, where additional documentation, such as flight details and travel itineraries, will be needed. Good record-keeping helps ensure compliance and protects you in case of an HMRC inquiry.
The Tax Implications
Allowable travel and subsistence expenses can be deducted from your company’s taxable profits for tax purposes. However, if any costs benefit you personally, they may be subject to tax as a benefit-in-kind.
One pitfall to remember is that travelling to your regular place of work does not qualify for tax relief. Only journeys that are outside your regular commute for business purposes are eligible.
As a rule of thumb, if you regularly attend the exact location over time, this can become a ‘normal place of work’; it is also possible to have multiple places of work. Your home can also be your regular place of work if you regularly work from home.
For overseas travel, expenses are only allowable if the trip's primary purpose is business. If the trip involves personal activities, you must apportion the payments accordingly.
Finally, HMRC will generally allow one alcoholic drink only, so there will be no sessions in the pub.
Conclusion
Properly claiming subsistence and travel expenses can benefit both you and your company by reducing tax liabilities and ensuring that business-related costs are appropriately claimed. The key is ensuring that all claims are legitimate, well-documented, and strictly for business purposes. If you're unsure whether a specific expense qualifies, we would happily discuss this with you.
