Travel expenses – the rules and the risks.
Travel expenses can be tricky, but they affect SO many people. In this episode we’re exploring the rules and the risks, and giving you some tips around keeping it all as simple as possible.
Hi, and welcome to another episode of BaranovTV, designed to demystify the world of accounts and tax and to help your business grow.
In this episode, I wanted to explore something that we talk to clients about quite a lot. It’s an area that can be complicated, but actually an area that effects virtually everybody who runs their own business, because I’m talking about travel expenses.
This applies to employees, which obviously includes directors, whether they’re salaried or not.
The area can be quite complicated and obviously it affects a lot of people. There are some basics, and because it’s complicated, I have some notes. So forgive me, I will be referring to them to make sure that I’m getting everything right for you.
But there are some basics, and that largely depends on whether the travel is classed as business or not. It doesn’t matter whether YOU class it as business, it has to come down as to whether HMRC would class it as business travel.
There are two main factors that the Revenue denote as business travel.
- The first one is whether the journey forms part of employment duties, so it could be things like travel to a sales call or to install equipment; it’s travel that’s absolutely vital to being able to fulfil your role in your employment.
- The second are journeys to a temporary workplace. So if you’re not going to your normal place of work, but you’re going to a temporary workplace.
If we run through some certain situations and scenarios it will help to clarify the different aspects of business travel and whether expenses can be claimed or not.
Ordinary commuting, which is a Revenue term, cannot be claimed.
Ordinary commuting is deemed to be any travel between home and a permanent place of work, or any other non-work place.
So for example, you can’t claim for going from home to the office everyday, because you would be expected to do that every time. You cannot claim if you’re, say, “Well, actually, I’m not going home, I’m going to the gym.” You still can’t claim. It’s ordinary commuting. It isn’t claimable.
Travel between two workplaces is claimable as business travel and as a business expense.
So for example, if you’ve got different branches or different company locations, traveling between them does class as business travel.
Travel can include subsistence and accommodation, if an overnight is needed to be able to fulfill that obligation.
So you could also, therefore, if you’re staying away you can claim for subsistence. This could be a meal at the hotel the night before you need to be staying in that hotel.
Something to bear in mind, and you may want to draw up a policy to cover off, is that the Revenue have no regard and no concern at all about the size of the claim for the travel expenses.
So, as an employer, you may want to specify in an expenses, or a business travel policy, that travel that you will reimburse must only be standard rate. Otherwise, it would be perfectly admissible for your employees to book themselves on a train journey, but to book themselves first-class rather than standard.
Now, if for some bizarre freak, that is possible to get that cheaper, then that’s great, but if they can’t get that cheaper, then you will end up reimbursing them at a higher level and you may want to put a cap on that. But as far as the Revenue is concerned, they are not concerned about the level of that expense.
If you use your own car for business travel, or if your employees do, then there are things to consider here.
The Revenue don’t need to actually know, as long as the mileage rate that you’re paying does not exceed the Revenue’s Approved Mileage rates. So you need to make sure that you are only reimbursing up to those rates.
If you do go beyond that, then that claim needs to go on a P11D, because there will be an additional tax to pay. But as long as you stay below that, then you’re absolutely fine. And if, as an employer, you pay below that mileage rate, then your employees should reclaim the difference between what you’re paying and the Revenue Approved Mileage rates on their tax return. So they’re not losing it, they just need to make sure that they get that through their tax return.
So we’ve used a couple of terms: permanent workplace and temporary workplace. I just thought it might be useful to differentiate between the two.
A permanent workplace really, as far as the Revenue are concerned, depends on the amount of time and frequency of the visit.
So if you’re going to be going to the same place for 6 months, 12 months, 24 months, then that would class as a permanent place of work. However, if you’re only going once a week, for three weeks, or if you’re going, say, for example, in our last business we had team members going out to different clients on audit. Those were classed as temporary workplaces because they’re only going for a short term. So things like installing equipment, as we mentioned before, or for a meeting. Then if it’s a temporary workplace, you can claim the cost of the travel to and from, or from your permanent to your temporary workplace.
So, you do need to think about what classes a permanent workplace, and do look at the Revenue guidance to check whether that time scale, if it is a closed period, make sure that you do check whether that counts as permanent or not.
There is also a consideration, if you’ve got team members who are working from home, it only becomes relevant to claim home to work expenses if the job actually requires them to work from home. So if you cannot give them the facilities within your office, or you don’t have an office, but if they are required to work from home, then if you then ask them to come to a central point, for, say, a face-to-face meeting once a month, then realistically they can claim that as an expense.
If they choose to work from home, though, and they come in once a week for a catch-up, then that’s not claimable. So you just need to be a bit careful as to how you categorize that. And if you’ve got a remote working policy, then that’s the place to put that into.
The whole travel expenses side of things can get complicated!
What we would recommend is that you really think that through carefully, you design a policy to make sure that you’re setting your guidelines and the boundaries of that, just so that it’s very clear from day one to all your team members exactly what they can claim, what they can’t, and make sure that they know who to ask and how to clarify if something is outside of that policy.
We would also recommend strongly that you have very clear record keeping.
If you are paying within the HMRC Approved Mileage rates, they don’t want to see the information, but if they come out and they want to open an enquiry and to check your records you must be able to produce those.
We would recommend either Xero Expenses or Dext (formerly ReceiptBank) to make that really easy, because you can give an access to all of the members of your team who are out-and-about so that they can take photos and submit their expenses straightaway. It just makes things really easy.
For business owners we would suggest that you keep a very clear mileage log, so make sure that you keep a note as you go of where you’re going, why you’re going, when you went, and what the mileage was. We like MileIQ to help, which can bolt on to your bookkeeping system. But there are others; the beauty of MileIQ is that it dovetails beautifully with Xero and with Quickbooks, so it makes it really simple.
If the Revenue do enquire into expenses, they can go back six years. They can charge interest and penalties. It can get really onerous.
So hopefully that explanation has given you an idea of what you need to be thinking about, but as ever, if you’re unsure and you want to run by us some questions, then please do get in touch. It’s what we’re here for, so please do make use of us.
But in the meantime, I hope that’s helpful, and I’ll see you all very soon.
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