Common Misconceptions – What Travel Expenses Are Tax Deductible
A common question we get asked by people is what travel expenses are tax deductible and what they can claim – such as whether they can claim their normal commute to work, hotel costs when on a business trip, those drinks at the airport bar. We’ve put together a short guide giving an outline to the can’s and can not’s of travel expenses. Remember, this guide is not exhaustive – for more comprehensive advice, please get in touch with your chartered accountant. You can always ring us or you can use our popular ask-an-accountant service.
As a general rule…
Any expense (as an employee or director) ‘wholly, exclusively & necessarily’ incurred in the general course of business is allowable. For travel & subsistence expenses, tax reliefs are available only on the cost of business journeys – for example if you are required to go on a site visit to somewhere away from your office.
Your normal commute is not allowable. This is defined as your travel from your home to your permanent workplace. For most people, their permanent workplace is obvious. In some cases, it may be less obvious, and you may need advice (for example, if your time is split equally between two locations).
Private journeys are not allowable. However, if you use your private vehicle to make an allowable business journey, you can claim mileage to cover your costs.
What you can claim against
You can get tax relief on any ‘necessary’ costs of travel. These include, but are not limited to:
– Public transport fares – train, coaches or tube
– Hotel accommodation, meals
– Tolls, congestion charges, parking fees (but not parking fines!)
– Business phone calls, other costs.
For costs that are not directly related to the business journey, such as newspapers or private phone calls, no tax relief is available.
If you have employees that have a lot of business travel, there may be some additional national insurance costs to any reimbursed expenses. If you pay your employee for any money in excess of the total receipt amounts then that money is considered earnings, so there will be tax and NICs due on that amount:
Example: Jane’s employer pays her £50 to buy a rail ticket to attend a training course. Nicole decides to go by bus instead, which costs £30. The excess £20 is considered earnings. If Jane returns the £20 back to the employer, then there is no charge.
If your employees use their own car, motorcycle or bicycle for business travel, then there is an allowable amount that you can reimburse them, using HMRC’s mileage rates –
First 10,000 miles – 45p per mile
Thereafter – 25p per mile
First 10,000 – 24p
Thereafter – 24p
First 10,000 – 20p
Thereafter – 20p
Again, you can pay your employees more than these rates, however that is considered earnings, as explained above.
Example: Ben makes a business journey in his private car, travelling a total of 100 miles. His employer reimburses him at a rate of 60p per mile, for the whole distance.
Payment made to Ben – 60p x 100 miles = £60.00
HMRC rate – 45p x 100 miles = £45.00
Total earnings – = £15.00 on which Class 1 NICs are due.
Incidental Overnight Expenses
There is an allowance for any personal ‘incidental’ expenses for employees staying overnight somewhere, for example buying newspapers, paying for laundry or private phone calls. HMRC will allow you to pay up to £5 per night, or £10 per night for travel outside the UK, without incurring any NIC obligations.