Maximising Business Expenses: Travel and Subsistence

When working out the profits or losses of your business, you can deduct any allowable expenses that you incur in running your business to arrive at the profit (or loss) figure before tax. The more expenses you deduct, the lower your taxable profit and the less tax you pay. In most people’s books that is a good thing! It is important, therefore, that you claim a deduction for all allowable expenses.

The following is an article from our newly updated report How to Maximise Deductions for Business Expenses

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Travel And Subsistence Expenses

In computing the profits of a trade or a profession, expenses are deductible to the extent that they are incurred wholly and exclusively for the purposes of the business. This general test applies equally to travel and subsistence expenses as to other types of business expenses. Expenses which may fall into this category include vehicle expenses, train, bus car and air fares, the cost of hotels and other overnight accommodation, and the cost of meals. By contrast, no deduction is available for non-business driving or travel costs, fines (such as parking fines) or for travel between home and work.

Despite this relatively straightforward premise, there are some pointers to bear in mind when seeking to make the most of the deduction for travel and subsistence expenses. Particular care must be taken where there is a dual purpose to the expenditure; only travel costs that are incurred wholly and exclusively for the purposes of the trade can be deducted.

Home To Work Travel

The cost of travelling between home and work is not deductible in computing taxable profits. Such expenditure is private expenditure rather than business expenditure. The choice of where to live is a personal choice, and the journey from home to work is determined by the taxpayer exercising his or her choice as to where to live. It does not matter when the taxpayer does some work at home; this in itself is not sufficient to make the journey from home to work a business journey.

The case of Newson v Robertson [1952] 33 TC 452 concerned a barrister who carried on his profession partly at his chambers in Lincoln’s Inn and partly at his home in Whipsnade. When the courts were not sitting, the barrister worked at home, visiting the Chambers occasionally. He claimed a deduction for the cost of travel between home and his Chambers. The Court disallowed the deduction because the expense was incurred to allow the taxpayer to travel between his place of residence and his place of work. It did not matter that he had two places of work – home and his Chambers. At best, the purpose of the journey is mixed. The journey was not incurred for the purposes of enabling him to do his work but enabling him to live away from it.

Likewise, stopping off, say, to drop off something with a client, or to go to the post office to post a business letter, does not make the journey home one incurred wholly and exclusively for the purposes of the trade. The main purpose is to go home after work.

Identifying the base from which the trade or profession is carried on

In order to determine the extent to which travel expenses are deductible, it is necessary to identify the base from which the taxpayer carries on his trade, profession or vocation. To do this, it is necessary to look at the nature of taxpayer’s activities and how they are organised. For example, shopkeeper carries on his or her trade from their shop, a barber from their barber shop, a mechanic from their garage, etc.

In the Newson case, the barrister carried on his profession from his Chambers. Once he arrived at his Chambers, the cost of travelling to and from Court was accepted as a business expense and was deductible. However, the cost of travel from his home to Chambers was not a business expense; it was incurred because he lived away from the Chambers.

Home as base

Where it is possible to establish that home is the base of operations, travel from it for the purposes of the trade will be allowable as a business expense. This was illustrated in the case of Horton v Young (1971) 47 TC 60, which concerned a bricklayer who worked on a number of sites within a certain radius of his home for a few weeks at a time. It was held that his home was the base of his operations. Consequently, a deduction was permitted for the cost of travel between home and the site.

There is a difference between basing the operations at home and undertaking some work at home. For example, if an accountant had an office where he mostly worked and saw clients, but he did some paperwork at home, the office would be his base of operations and travel from home to the office would not be deductible. By contrast, if the accountant was based at home and sometimes visited clients at their premises, travel from his home to the client’s premises would be a deductible business expense.

Trap

Undertaking office work at home does not make home a business base, and the journey between home and ‘work’ an allowable expense.

Practical Tip

Travel from home can be deducted as a business expense if home is the base of operations.

Mixed Private And Business Travel

A claim for a deduction of travel expenses will fail if there is duality of purpose (see section 2.4). Where this is the case, no part of the travel will be deductible as none of it is incurred wholly and exclusively for the purposes of the trade.

An example of where this may be the case is if the trader combines a business trip and a holiday. For example, if a trader flies to a foreign country with her husband for the purpose of having a holiday and meeting with suppliers, the travel will have a dual purpose and a deduction will not be permitted. Travel expenses will only be allowable if incurred wholly and exclusively for the purposes of the trade. If on a business trip, the trader travelled from the hotel to visit the supplier and then back to the hotel, without also spending time, say, sightseeing, the associated travel costs will be deductible as incurred wholly and exclusively for the purposes of the trade.

Practical Tip

Where possible try and make sure that business travel is separately identifiable from any personal travel to facilitate a deduction for the business travel.

However, if the private purpose is incidental to the business purpose, the deduction will be allowed. For example, if a trader attends an overseas conference, any private benefit obtained while attending the conference, such as enjoying the scenery or the food, will not compromise the deduction. The expenditure is allowable if the wholly and exclusively test is met.

Use Simplified Expenses To Claim a Fixed Rate Deduction For Mileage Costs

It is possible to save work by claiming a fixed rate deduction for mileage costs calculated by reference to the number of business miles driven in the year instead of a deduction for actual costs incurred. This removes the need to keep more detailed records to support a deduction.

The deductible amount is found by multiplying the number of miles of business journeys made in the vehicle in the tax year by the rate applicable for that type of vehicle.

The rates mirror the approved mileage allowance rates. The rates for 2018/19 are as set out in the table below.

 

Example

Becky is self-employed as a mobile hairdresser and uses her car for her business. In 2018/19, she drives 11,750 business miles. To save work she opts to claim a fixed rate deduction for vehicle costs. The permitted deduction is £4,937.50 ((10,000 miles @ 45p per mile) + (1,750 miles @ 25p per mile)).

Trap

Where a fixed rate deduction is claimed it is not possible to claim capital allowances as well for the cost of the car.

Trap

Once the mileage basis has been adopted for a particular vehicle, it must continue to be used while the vehicle continues to be used by the business. It is not possible to cherry pick the best basis each year. However, a different method can be adopted for different vehicles.

Subsistence Expenses

As everyone needs to eat, on the strict application of the law there can be no deduction for the cost of food and drink as the expense is not incurred wholly and exclusively for business purposes. However, there are circumstances when a deduction for subsistence expenses is permitted. The legislation specifically allows a deduction for reasonable expenses incurred on food and drink if the business is by its nature itinerant or where occasional business journeys outside the normal pattern are made. In these circumstances, modest expenses in relation to food and drink can be deducted in computing profits.

Where the ‘wholly and exclusively’ test is not met, no deduction is permitted for any additional costs incurred in relation to food and drink as a result of having to eat away from home or the normal place of business.

Overnight Subsistence And Accommodation Expenses

In the event that a business trip necessitates one or more nights away from home, a deduction can be made for reasonable costs of overnight accommodation and also for the cost of reasonable meals taken in conjunction with the overnight accommodation. There is no requirement for the accommodation and the meals to be paid on the same bill. So, for example, the trader could stay in a hotel and eat in a restaurant.

Self-employed long-distance lorry drivers can claim a deduction for the reasonable cost of meals taken in conjunction with overnight accommodation. The same treatment applies to lorry drivers who spend the night in their cab.

Trap

The deduction only extends to ‘reasonable’ meals and the expense must be supported by evidence.

Travel In Style

The rules merely require that the expense is incurred wholly and exclusively for the purposes of the business. There is no requirement to minimise costs and the deduction is forthcoming regardless of whether you travel on a budget or first class. This means, for example, if you need to go to a business meeting abroad, finances permitting, you can fly first class and deduct the costs in computing your business profits.

Practical Tip:

If in doubt, go back to basics and ask yourself whether the travelling expenses meet the ‘wholly and exclusively’ test.

By Sarah Bradford

This is an excerpt from our popular report How to Maximise Deductions for Business Expenses. For more information, click here.