Tax Deductible Travel Expenses
Limited Company:
As a director of a limited company, you can claim various travel expenses from your company, as long as they are incurred wholly, exclusively, and necessarily in the performance of your duties. The rules set by His Majesty's Revenue and Customs (HMRC) specify which expenses are allowable. Here are some key types of travel expenses you can claim:
Mileage Allowance: If you use your personal vehicle for business travel, you can claim a mileage allowance. The rates are set by HMRC and are subject to change. As of my last update in April 2023, the rates were 45p per mile for the first 10,000 business miles in a tax year and 25p per mile thereafter for cars and vans. Different rates apply for motorcycles and bicycles.
Public Transport Costs: Costs of travel by train, bus, plane, or taxi for business purposes can be claimed. Ensure to keep all receipts and tickets as proof of the expense.
Hotel Accommodation: If you need to stay overnight for business purposes, the cost of hotel accommodation can be claimed. This should be reasonable and not extravagant.
Meals and Subsistence: You can claim for meals and subsistence costs when you are away from your usual place of work. The rules around what is claimable can be quite specific, so it's important to understand the HMRC guidelines on this.
Parking Fees and Tolls: Parking costs and road tolls incurred during business travel can be claimed. Keep the receipts as evidence.
Overseas Travel: Similar rules apply for international travel for business. This includes airfares, accommodation, and a reasonable amount for meals and incidental expenses. The rates applicable to employees (directors are employees) travelling overseas for incidental expenses are listed in this link.
Remember, for all expenses claimed, you should keep detailed records, including dates, the purpose of the trip, and receipts. Personal expenses or costs incurred for non-business-related activities cannot be claimed. Also, travel to and from work is not in the production of income and can’t be claimed as a business expense.
Top tip: Use Hubdoc or expense management software to take photos of your receipts and slips. Remember to make notes on the receipt/slip before you take a photo to help you understand what the purpose of the trip was for.
It's also important to note that tax laws and rates can change, and there may be specific circumstances or additional rules that apply to your situation. For the most accurate and up-to-date advice, it's advisable to consult with an accountant or a tax advisor who is familiar with the current HMRC rules and your specific business circumstances.
It’s vital to keep accurate records because any reimbursement over the actual cost of travel or personal travel, should be reported to HMRC and National Insurance should be paid over.
Sole Trader:
For sole traders in the UK, the rules for claiming travel expenses are slightly different from those for directors of limited companies. However, the fundamental principle remains the same: the expenses must be wholly and exclusively for the purposes of the business.
Here are the key points regarding travel expenses for sole traders as per HMRC guidelines:
Vehicle Expenses: You can claim the running costs of a vehicle used for business purposes. This includes fuel, repairs, insurance, and vehicle tax. You have two options for claiming vehicle expenses:
1) Simplified Expenses: A flat rate per mile for business travel. As of my last update, the rates were 45p per mile for the first 10,000 miles and 25p per mile thereafter for cars and vans. Different rates apply for motorcycles.
2) Actual Costs: Keeping detailed records of all vehicle-related expenses and claiming the business proportion of these costs. Remember – only the business portion. So the full fuel bill can’t be claimed, and any private use should be taken out.
Public Transport Costs: If you use public transport for business travel, such as trains, buses, or planes, you can claim these costs.
Accommodation and Meals: When you travel for business and need to stay away from your home overnight, the costs of hotels or B&Bs can be claimed. You can also claim for meals during the trip, but these claims should be reasonable.
Parking, Tolls, and Congestion Charges: Costs incurred for parking, tolls, and congestion charges during business travel can be claimed.
Overseas Travel: Business trips abroad are also claimable, including flights, local transport, accommodation, and meals. Just as with domestic travel, these expenses must be wholly and exclusively for business purposes.
Other Travel Costs: Other incidental costs associated with business travel, such as the cost of business calls or internet access while away, can also be claimed.
For all claims, it's essential to keep accurate records and receipts. The expenses should be separated from any personal expenses, and the business portion should be clearly identifiable. HMRC may request evidence of these expenses, so good record-keeping is crucial.
The difference between the tax deductibility of travel expenses for sole traders and limited company is as follows:
As a sole trader, you and your business are legally the same entity. This means that your business's profits are taxed as your personal income. Hence, travel expenses reduce your taxable profit and consequently your income tax.
A limited company is a separate legal entity from its directors and shareholders. The company's profits are subject to Corporation Tax. Expenses claimed reduce the company's taxable profit, which affects Corporation Tax but not directly the personal income tax of the director.
National Insurance Contributions (NICs) works differently for sole traders and directors of limited companies:
Sole Traders: Travel expenses reduce profits, which could consequently reduce Class 4 NICs.
Limited Company Directors: As they are employees of their company, the way travel expenses interact with NICs can be more complex.
It is also very important to separate your personal affairs from your sole trader or limited company as this could complicate matters with HMRC and benefit in kind tax.
Overall, while the types of expenses that can be claimed are similar, the way they are claimed, reported, and their impact on taxation differs due to the inherent differences in the business structures of sole traders and limited companies.