Food, Drink & Travel Expenses - Feb 23
Travel and subsistence is an area of expenditure which often causes confusion amongst employees and employers alike.
If this type of expenditure is relevant in your work, I’d recommend spending a couple of minutes brushing up on the main rules.
If anything is unclear with this, let me know.
Travel & Accommodation
First let’s deal with the easier bit – travel.
The cost of any business journey, other than an ordinary commute, is an allowable expense.
An ordinary commute is deemed to be a journey between a person’s home, and their permanent place of work. A workplace is judged as non-permanent (and therefore not part of a commute) if it is to be travelled to for no more than 24 months and 40% of the time.
In other words, even if you assume from the outset that you will be present at the site for longer than 24 months, but you only attend the site for 1 day a week, the journey would be deemed as a commute and not an allowable expense because it doesn’t satisfy both criteria.
So clearly, an ad hoc journey to visit a client or attend a course is allowable but a commute isn’t, I’d recommend applying the above test for anything in between.
Costs can include ticket prices for public transport, taxi fares, parking charges and road tolls. Fines for dodgy parking or speeding are not allowable expenses. If business journeys are completed using a private vehicle, a mileage charge of 45p for the first 10,000 miles and 25p thereafter can be applied.
Business travel can also involve overnight stays. HMRC allow reasonable deductions for accommodation, but do not publish an agreed benchmark for UK Travel (Overseas travel is covered). As an example however, its safe to say that a week in the Savoy would probably not be considered reasonable for a ½ hour catch up with a colleague in London.
Ordinarily, where an employee has borne the cost of the business journey, an expense claim will be raised, and the employer will reimburse them. Reimbursements over and above what is deemed as reasonable will count as a benefit-in-kind (BIK), and fall subject to income tax and NI. Where the employer has reimbursed only some or none of the employee’s allowable travel expense, the employee may then claim tax relief on the expense.
For example, if any employer reimburses an employee 60p per mile for a business journey in their private car, a taxable benefit would arise on the 15p excess (60p minus 45p). If an employer reimburses only 30p, then the employee can claim tax relief on the shortfall of 15p (45p minus 30p).
Meals are where things become a little more complex. Subsistence is defined as the action of maintaining or supporting oneself, especially at a minimal level.
A meal for tax purposes is defined as a combination of food and drink. Therefore your mid-morning coffee or evening G&T at the hotel would not be deemed as subsistence unless accompanied by food. Extra encouragement is needed to grab a cake / pack of twiglets.
Organisations can seek agreed specific meal rates with an HMRC officer. In the absence of such an agreement, HMRC publish benchmark rates as follows (remember, these costs aren’t an entitlement, they actually have to have been incurred, and evidence retained):
5 hour rate - Up to £5 can be paid when away from normal place of work for 5 hours or more. An additional £10 can be paid as a supplement if the journey extends beyond 8pm.
10 hour rate – Up to £10 can be paid when away from normal place of work for 10 hours or more An additional £10 can be paid as a supplement if the journey extends beyond 8pm.
15 hour rate – Up to £25 can be paid when away from normal place of work for 15 hours or more, or when staying overnight, provided the meal is not already included in the cost of the accommodation.
Unlike travel expenses, tax relief is not available for the employee if an employer does not choose to reimburse the full benchmark rate.
Think also about locality. There is no published guidance as to what distance constitutes travel. However, billing any expense for food and drink in the vicinity of your regular place of work would not be allowable.
Gifts and Entertainment
As I’m sure many of you are aware, perhaps to your disappointment, the entertaining of your clients is not a tax-deductible expense. Client entertainment would include offering food and drink, providing accommodation, concert tickets and theatre, entry to sports events and clubs.
However, entertaining your staff is an allowable business expense, provided it is not part of a salary sacrifice scheme. This can include venue hire, food, drink, entertainment and accommodation.
Because entertaining your staff is effectively a benefit, in principle it then becomes subject to income tax and national insurance contributions. Presenting your staff with a tax bill for attending Friday drinks probably won’t go down well, particularly amongst the less willing attendees, who let’s say only went along for an orange juice to keep the boss happy.
Thankfully the ‘annual party exemption’ comes to the rescue. This is an allowance of £150 per employee per year, exempt from income tax and NI, provided it is spent on one or more annual event(s) and is open to all. Any expenditure in excess of this would then be considered a taxable benefit.
There are subtly different rules for sole traders and other unincorporated entities, largely around the definition of ‘staff’. For example if you are a sole trader, or in a partnership, or employ only a family member, then technically no staff exist and therefore the exemption cannot be applied.
Employers are also able to gift non-monetary items to their employees provided the cost of each item is less than £50. For you Company Directors, the sum total of these gifts cannot exceed £300 in a tax year. These are known as trivial gifts.
There are lots of nuances around travel and subsistence rules, mainly in response to abuses in the past. Consider what you would deem to be reasonable and check if it’s wholly and exclusively in the service of your business. Generally speaking, if the answer is yes to both then it would be allowable.
Remember, if you are VAT registered, any VAT suffered on your allowable travel, subsistence and staff entertainment purchases (including the fuel element of your mileage charge), can be reclaimed on your quarterly VAT returns.
24 Month / 40% Rule - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32080
Entertainment - https://www.gov.uk/expenses-benefits-social-functions-parties