The majority of expense claims for travel relate to public transport, this includes trains, buses, planes and taxis, all of which are allowable for expenses purposes. When travelling via taxi, it’s important to ensure that their use is reasonable, such as at times or places where other forms of public transport are not available.
Common Contractor Expenses
As there is a such a large variety of expenses permitted when it comes to travel, we have developed some individual guidelines which you should find useful:
- 24 Month Rule for travel
- Charity, Entertainment and Sponsorship
- Childcare costs
- Company Assets
- Home Office
- Pension Contributions
- Training Costs
When using your personal vehicle for business purposes, the rate you can claim changes dependant on the type of vehicle you own, and the number of miles already completed in the current tax year.
To calculate how much Mileage Allowance Relief you can claim, use the below approved mileage rates:
|First 10,000 miles (per tax year)||Miles over 10,000|
|Cars||45 pence per mile||25 pence per mile|
|Motorbike||24 pence per mile||24 pence per mile|
|Cycle||20 pence per mile||20 pence per mile|
These rates are inclusive of VAT, so you should not add on any further charges for VAT, unless you are invoicing a client for your travel expenses. If you are using the standard VAT scheme, then you will be able to reclaim the VAT, at a fluctuating rate between 1p and 3.5 p per mile, dependent on prevailing rates at the time when the VAT is reclaimed. VAT is only reclaimed on the fuel element of the mileage.
In order to claim expenses, you must keep records of every journey that you take, plus receipts for fuel including VAT (if your claim includes VAT). The VAT shown on the receipts must cover what needs to be reclaimed.
If provided with a company car by your employer, then you will not be able to claim mileage in line with the rates above, but if your fuel is not covered by your company, then you may be able to claim a reduced rate (as per the advisory rates set by HMRC). Detailed logs of all relevant journeys would need to be kept.
If you are unsure whether supplying a company car is a sound financial decision, it is worth considering the below implications as either an employer or employee:
Implications for employers
You cannot reclaim VAT on the purchase of a new car. When purchasing a second-hand car, VAT is not normally charged, but if it is then it can be reclaimed.
If you acquire a company car through a lease contract, then the monthly charges may include VAT. Businesses which are on the Flat Rate VAT Scheme cannot reclaim any of this amount, but those which are on the standard VAT scheme can claim back 50 per cent of their payments. If there is a maintenance contract for the car, which is itemised separately, then any VAT charged on this may be reclaimed by businesses which are on the standard VAT scheme.
The value of the benefit in kind will be the same whether the car is leased or purchased outright, but the way it is treated for the purposes of Corporation Tax will vary, as detailed below.
Corporation Tax Relief will be available on cars which are purchased outright, according to their emissions, as follows:
|New and unused car with CO2 emissions 75g/km or less, or electric cars||100% first year allowance|
|New and unused car with CO2 emissions 75-130g/km||18% per annum reducing balance|
|Second hand card with CO2 emissions less than 130g/km||18% per annum reducing balance|
|New or second hand card with CO2 emissions more than 130g/km||8% per annum reducing balancence)|
If the car is leased or hired on a contract then the Corporation Tax relief available will be:
|Cars with emissions up to 130g/km||100% of lease cost|
|Cars with emissions over 130g/km||85% of lease cost|
The benefit in kind value of a company car will attract Class 1A National Insurance contributions from the employer at a rate of 13.8 per cent.
When the car is sold, if the amount received is more than the tax written down value, a balancing "charge" arises. If the amount received is, however, less than the current tax value than a balance remains if the car is in the general pool. A balancing "allowance" to get 100% tax relief in total will only arise when the company closes. It is generally, therefore, more tax efficient to lease a car than purchase a car if the CO2 emissions place the car in the "18% category".
If the car is sold for a tax loss, then there will be no balancing allowance given, but if the car is sold for a tax profit then a balancing charge will be levied. For this reason, it is usually more tax efficient to lease a car than to buy one, unless emissions are lower than 110g/km.
Implications for employees
An employee with a company car will be considered to be in receipt of a benefit in kind, the value of which will be taxed at their marginal rate, effectively treating the benefit as salary.
The value of the benefit in kind will use up a proportion of their basic tax band, meaning that there will be less availability for drawing tax-free dividends.
An employee using a company car will not be able to claim the tax free mileage rates of 45 pence per mile or 25 pence per mile. If fuel is not provided, they may be able to reclaim a reduced rate.
How to calculate the benefit in kind
The value of a benefit in kind is calculated using the cost of the car when purchased (including any additional extras), the CO2 emissions and the type of fuel on which it runs. The calculation is as follows:
- Take the car’s CO2 emissions and subtract 95 (unless they are below 95g/km)
- Divide the remaining figure by 5 and round the resulting figure down to the nearest whole percentage point
- Add 16 per cent for petrol or 19 for diesel to find the benefit in kind percentage (up to a maximum of 37 per cent)
- Multiply this figure by the list price to provide the benefit in kind value
Low CO2 Emission Cars:
Cars classed as ‘low emission’ for the purposes of the benefit in kind calculations have emissions of 75g/km or lower, if this is the case then the following benefits will apply (Rates below are for 2017-18 tax year):
|Emissions||Car Benefit Percentage|
|0 - 50g/km||9%|
|51– 75 g/km||13%|
|76- 94 g/km||17%|
|95 - 99 g/km||18%|
If the car is a diesel, then a 3 per cent premium will be added to the car benefit percentage.
Calculating the Fuel Benefit:
Any fuel which is provided for the private use of a car will be counted as an additional benefit in kind and is calculated using the car benefit percentage, using the formula above, multiplied by the fuel base cost of £22,600 (2017/18).
The taxable benefit applies for any fuel provided for personal use, so unless the employee reimburses the company for the cost of any fuel used for private purposes, although part reimbursement of private fuel does not reduce the fuel benefit value.
The owner of a company decides to provide himself with a company car, and chooses a petrol car with CO2 emissions of 132g/km at a cost of £22,000 and with fuel provided for private use. The value of his benefit in kind can be calculated as follows:
CO2 emissions of 132 – 95 = 37
37/5 = 7.4 per cent, which is rounded down to 7 per cent
7 + 16 = a benefit percentage of 23 per cent
List price (including any extras):
23 per cent of £22,000 gives a car benefit of £5,060
Fuel base cost:
23 per cent of £22,600 gives a car benefit of £5,198
Total benefit in kind: £10,258
This benefit would need to be included on the employee’s personal tax return with an adjustment each year for % increases and, as such, will be taxed at the marginal rate. For basic rate taxpayer, this means an additional tax of £2,105.60. If you have dividends that take you up to, or above, the high rate threshold before taking this additional benefit in kind into account, then you will have to pay an extra £3,333 in tax.
HMRC may wish to amend his tax code to allow them to collect the tax that is owed on the benefit in kind through his salary.
The business will also need to declare the company car on the employee’s P11d each year and pay employer’s National Insurance Contributions at the rate of 13.8 per cent, totalling £1,415.
For the most part, company cars are not a tax efficient in circumstances where the owner and employee are one and the same, as this means that both the employee’s and employer’s taxes are effectively paid by the same person.
For a company car to be a genuine tax efficiency, then it can be either in a case where the employee is not a shareholder in the company providing the car, or if the car is particularly environmentally friendly. For this reason, it is usually inadvisable for owner managers to have a company car.
The Cycle to Work Scheme provides a tax incentive for employees to choose environmentally friendly modes of transport with added health benefits.
A company can provide an employee with a bike assuming the following conditions are met:
- The company owns the bike and related equipment
- The bike itself is used mostly for qualifying journeys
- The employee does not gain ownership of the bike during the loan period
- The use of a loaned or otherwise provided cycle is available to the entire workforce
A qualifying journey is defined as one which takes place between the employee’s home and workplace, between one workplace and another is connected with the carrying out of their duties. More than 50 per cent of the use of the bicycle, and any associated safety equipment, must be on qualifying journeys.
Employees will not need to keep a record of their journeys but it must be made clear that if the cycle or any related equipment is not used primarily for qualifying journeys then a taxable benefit would arise. For this reason, it may be worth keeping logs, just in case an HMRC investigation is conducted, in order for you to prove that the cycle was used for its intended purpose.
It is also important to consider insurance coverage for the cycle and for the employee while they are using it. Some employees may be able to include the cycle under their own home insurance policy, or it may be able to be included under the company’s existing insurance, but any agreements in place between the employer and employee should be recorded.
How does it work?
The scheme is designed to allow a company to purchase a bike, and any safety equipment that is required for its operation such as lights, bells and mirrors, and claim Capital Allowances on the cycle’s cost. They can also reclaim VAT on the purchase if they are on the standard VAT scheme, but a business that is on theFlat Rate VAT Scheme can only reclaim it if the total gross purchase price is included on a single invoice and amounts to more than £2,000.
The bike should be made available to the employee on the basis that it is a long-term loan, and no tax liability is incurred by the employee so long as the conditions detailed above are met.
There is no automatic entitlement for the employee to own the bike once the loan period is over, and if this is part of the agreement between the business and employee, then the provision of the bike will not be exempt from tax under the Cycle to Work Scheme. However, if the company chooses to, it may allow the employee to purchase the bike when the scheme is over, providing the price is either ‘market value’ or is obtained using the simplified sale value. This value can be calculated from the initial purchase price as detailed below:
|Age||Cost new <£500||Cost new >£500|
|6 years and over||Negligible|
A cycle sold for less than the ‘market value’ or an appropriate value as per the calculations above will be liable for a tax charge.
Whilst the Cycle to Work Scheme is designed to provide a certain level of benefits to those using it, it is important for you to be aware that you are ineligible for cycle mileage claims (20p per mile 2015/16). If you do a significant number of miles on your personal bike over the course of a year, then it may be more financially sound to purchase a bike yourself and claim back the business mileage. The Cycle to Work scheme is generally only a tax efficient option if the bike in question is expensive and the number of business miles you do on it is relatively low.
In some circumstances, providing an employee with a company motorbike can be a more tax efficient option than supplying a company car. Some of the main benefits of a motorbike over a car include:
- VAT charged on the purchase of a company motorbike can be reclaimed, but VAT must be charged on the motorbike if it is re-sold
- There is no upper limit on what can be claimed when it comes to the company’s tax calculation, meaning that the entire cost of the motorbike qualifies for capital allowances
- The value attached to a motorbike as a benefit in kind is significantly lower than other forms of transport, meaning lower tax liabilities
The employee will be taxed as having received a benefit in kind, so the company will have to pay additional Class 1A National Insurance.
The value of the benefit in kind is calculated as 20 per cent of the total cost of the motorbike (inclusive of VAT). So a motorbike that cost £8,000 would have a benefit in kind value of £1,600 (20 per cent of £8,000). If the motorbike is only available to the employee for part of the year, then the value of the benefit in kind is calculated proportionately. If the company also pays running costs such as insurance and maintenance, then the additional benefit in kind will be calculated at 20 per cent of these annual costs.
The benefit in kind value attracts tax at the highest rate that an employee pays, meaning that a higher rate taxpayer with a motorbike costing £8,000 will pay additional tax of £640 (calculated as £8,000 x 20% x 40%).
As a benefit in kind, the company would also be liable for Employer’s National Insurance at the rate of 13.8 per cent on the total as declared on the P11d form, which will be payable by the 22nd of July after the tax year has ended. The invoice for the payment must also be in the name of the company and the motorbike should be registered as owned by the company with the log book in the company’s name and a business insurance policy in place to cover it. If you do provide a motorbike for an employee’s use, or indeed any other benefit in kind, then it is important to inform your accountant in order to ensure that it is included in your financial reporting.
As with a non-motorised cycle, it can often be more tax efficient for an employee to use their personal motorbike for business journeys and claim back mileage from the company at the rate set by HMRC (24p per mile 2015/16).
Company vans are taxed differently to Company cars. However, in order to claim expenses for a company van it must qualify to HMRC’s set definition. This means that it must be purpose-built (not just a conversion which involves covering the windows etc) goods vehicle with a maximum legal laden weight of 3,500 kilograms.
The main benefits of a company van include:
- When a new van is purchased, the entirety of the VAT can be reclaimed. Second-hand vans usually have VAT included in the price (which can also be reclaimed). VAT must also be charged if the van is later sold on
- There is no upper limit on the amount of tax that can be claimed, so the entire cost of a company van will qualify for capital allowances
- As company vans attract lower benefit in kind values, the tax charges associated tend to be lower.
However, an employee will be taxed as having received a benefit in kind, so the company providing it will also have to pay additional Class 1A National Insurance. This does not apply if the van is only used for business purposes and any personal use is insignificant, but this means that if the van is usually parked at your residence overnight then it could be hard to prove that any personal usage is incidental.
Assuming the Van is used for personal use the following flat rate of taxable benefits arise:
- Van Benefit: £3,230 per annum
- Fuel Benefit: £610 per annum (where the employer pays for private fuel)
These benefits should both be included on the individual’s personal tax return and will be taxed at the employee’s marginal rate. This means that someone who pays a basic rate of tax on their salary will be liable for an additional £768 each year. If they had dividends which took them up to or over the high rate threshold (not taking the benefit in kind into account) then there would be an additional £1,248 in tax to be paid.
HMRC may also wish to collect any tax due directly via the individual’s salary.
The employer would also have to include the use of the van on an employee’s P11d form every year, and pay Employer’s National Insurance Contributions at a rate of 13.8 per cent on the value of the benefit in kind. In the example above, this would mean an additional tax bill of £529.92.
The costs of running the van, such as insurance and maintenance, can be paid by the company without adding to the employee’s tax bill, so long as all invoices are in the company’s name.
If an employee stays away from their home in the course of their duties, then they can claim the costs of accommodation back from their employer, as long as they do have a permanent place of residence.
There is no confirmed limit on the amount which can be claimed for accommodation, but HMRC will expect every claim to be reasonable. This is usually easy to demonstrate, except in cases where the nature of the accommodation means that it could be construed as a reward for the employee as opposed to an expense, which is incurred wholly and exclusively for the purposes of doing business.
The full cost of hotel, guesthouse and bed and breakfast accommodation is allowable for Corporation Tax purposes so long as they are not excessive.
If renting a furnished flat is a more cost effective way of providing accommodation for an employee, then these costs are also allowable, so long as the standard of the furnished flat isn’t of a significantly higher standard than that of the employee’s normal residence. In the case where an employee’s normal residence is of a particularly high standard, an equivalent flat may not be allowable.
A short term lease on a rented flat should be taken out in the company name, and paid directly from thecompany bank account where possible. The length of the lease should also be taken into account when considering the 24 month rule, as it may be considered as an indication of how long an employee intends to be based on the same site.
There are situations which will not be allowable, these include:
- If the employee is accompanied by their family – this is considered non-business usage
- If the choice of location is not work-related – this is considered a non-business reason
- If the standard of the location is unreasonably high – as detailed above
If you are travelling to a temporary location for work purposes, then you may be able to claim for the cost of lunch purchased en route or during your lunch break. These must be additional costs which you would not have spent were you not at the temporary place of work.
Lunch usually takes the form of a pre-packed sandwich (or equivalent), a meal in a café or canteen and can include a non-alcoholic drink. However, you cannot claim the cost of ingredients to make your own ‘packed lunch’, or the costs of a meal purchased the night before the trip to the temporary location.
If staying away from home overnight due to work commitments, you can claim the cost of breakfast and an evening meal. These must be reasonably priced and not to a standard which would be beyond what you would normally have. You can also claim a ‘flat rate’ incidental expenses allowance of £5 for each night, or £10 if you are overseas. This covers expenses such as laundry, phone calls, home etc that you would not incur if you were at home.
How can Nixon Williams help?
With so many rules and regulations concerning the claiming of expenses, it can seem like an impossible task to get everything right. You don’t want to miss out on claiming anything you are entitled to, but it can be hard to wade through the guidelines as well as keeping up with your work. Our specialist accountants can help you to determine what you can and cannot claim for and check your receipts to make sure everything is in order. To find out how we could help you, call us today on 01253 362062 or email firstname.lastname@example.org.