Self Employed Travel and Subsistence – Tax allowable or not?

Self Employed Travel and Subsistence – Tax allowable or not?

This is a popular topic for our self employed clients…

Subsistence includes accommodation, food and drink costs whilst away from the permanent workplace. Subsistence expenditure is specifically treated as a product of business travel and is therefore treated as part of the cost of that travel.

The cost of food, drink and accommodation is generally not an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live. They are normal costs of living incurred by all and not as a result of trading.

Occasional business journeys outside the normal pattern

Extra costs may be incurred wholly for business purposes where occasional business journeys outside the normal pattern are made. Modest expenses incurred in these circumstances may be deducted from business profits.

HMRC allow that “where a business is by its nature itinerant” i.e. you do not have a base but work at customer sites travelling from site to site to perform your work, then expenses may be claimed in relation to the costs associated with this travelling. Examples would be a self-employed travelling salesman, or a taxi driver, where it is part of the very nature of the business to travel. The cost of subsistence and accommodation while travelling is allowable.

Travel between home and work

If a self employed person has a base of operations that is separate to their home, then the cost of travelling between home and that base will be treated as ordinary commuting and therefore is not tax deductible.

Where the base of operations is away from home, and overnight accommodation and subsistence is incurred to allow the person to be at or close to the base of operations, then the expenditure will not be allowable.

However, where a person’s base of operations is at their home then the cost of travelling between their home and where work is carried out should be allowable. Difficulties can arise in determining whether there is a specific ‘base of operations’ and where this is. Claims for relief which are later challenged by HMRC could prove costly.

The crucial point is to establish precisely where the base of operations is. Each case will clearly depend on its own merits but in recent cases the fact that business records were kept and written up at home, that tools of the trade and equipment were kept at home and that new work was sourced from home were all contributing factors taken into account in determining where the base of operations was.

Overnight subsistence and accommodation expenses

Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible.

This does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place.

The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether they are paid on the same bill, or meals and accommodation are paid on separate bills.