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Travel expenses / subsistence scale rates

Can employee claim full cost of meals or are the subsistence scale rates the max allowable for tax?

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Apologies for the newbie style question, I'm brushing up on the basics to prepare for taking on some small private clients (I'm from mainly industry background). 

Scenario: Client is a contractor who travels to client sites and stays in hotels for several days at a time. He operates via a Limited Company (he is the sole director & sole employee). 

I seem to be reading conflicting information about what can be claimed for subsistence. Can the company put through the client's full food expenses (within reason) as tax deductible expenses? Or is the tax deductible amount capped at the subsitence scale rates (e.g. £5 for breakfast, £10 two meal allowance and £15 evening meal) and anything higher than this classed as a taxible benefit?

If they needn't be capped at the scale rates, what are the scale rates for? Is this just a different method which is allowed by HMRC whereby you claim a set amount without worrying about keeping receipts?

Same goes for the £5 overnight allowance - can the business reimburse the director for this regardless of actual spend or is this a cap on ad hoc expenditure for which receipts must be kept?

Many thanks in advance

Replies (17)

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By thehaggis
22nd Jun 2020 22:50

You are clearly not ready for private clients.

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Replying to thehaggis:
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By anapa
23rd Jun 2020 06:52

I agree, hence why I am trying to educate myself. Apologies if this is the wrong forum for asking such things.

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By anapa
23rd Jun 2020 07:39

I've done some further reading and I now gather that the scale rates may only be used if you apply for dispensation with HMRC via form P11DX. Otherwise it's simply a case of reimbursing costs incurred.

If someone would kindly confirm or correct my understanding I would be very grateful.

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Replying to anapa:
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By the_drookit_dug
23rd Jun 2020 11:24

Are you sure? I understood that the need for a dispensation has been removed and that the payment of travel and subsistence is now exempt from P11D reporting provided the employer is either:

- paying a flat rate to the employee as part of their earnings, either using HMRC's benchmark rate or a special (‘bespoke’) rate approved by HMRC
- paying back the employee’s actual costs

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Replying to the_drookit_dug:
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By anapa
23rd Jun 2020 12:16

Thanks, you are correct and I was reading old guidance.

My only follow up question then is whether the employer can switch between those two options as it pleases, or must it stick with one or the other?

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By Tax Dragon
23rd Jun 2020 07:43

A benefit is to do with the employment - tax on the employee. The cost of providing a benefit is normally deductible - tax relief for the employer - because employing people is normally deductible.

So your mistake is to think of that as one client (the human) when it is two (the human and the company). The human is likely to merge the company and him/herself in his/her thinking. You MUST not do the same.

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Replying to Tax Dragon:
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By anapa
23rd Jun 2020 08:39

Sure, of course. So if we use the scale rates and reimburse anything above those rates, it's still allowable for corporation tax but the excess is deemed a taxable benefit to the director?

I appreciate the advice

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Replying to anapa:
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By Tax Dragon
23rd Jun 2020 08:52

That's a much better question :), my work here is done.

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Replying to Tax Dragon:
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By anapa
23rd Jun 2020 09:11

Lol thanks. Not just yet, if I may :)...

Theoretical question... if we set up the scale rates dispensation with HMRC, must we then use these rates for each trip? Or can we then pick and choose the most beneficial policy based on what was spent each trip. E.g. if client spends more than the benchmark rates, can we reimburse actual expenditure instead without the excess becoming a taxable benefit? I'd have thought the answer is an obvious no, but the (quite old) thread below has some conflicting opinions.

https://www.accountingweb.co.uk/any-answers/hmrc-benchmark-scale-rates-v...

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Replying to anapa:
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By the_drookit_dug
23rd Jun 2020 11:25

That's an old thread and pre-dates the changes to the dispensation rules in 2016

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By tom123
23rd Jun 2020 08:23

Regardless of the value, or not, of the meals - are you certain the travel is a permissible deduction?

If the travel is allowable the meals follow the travel.

Have you considered the IR35 aspects?

(and I say that as someone in industry with only a passing awareness of travel and subsistence for personal service company contractors)

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By Paul Crowley
23rd Jun 2020 09:54

Will your self-employed as an accountant in practice be your main income?
Have you previously worked in an accountancy practice?
If you have an accounting qualification, do you have a practicing certificate?
Have you got PII insurance?

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Replying to Paul Crowley:
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By anapa
23rd Jun 2020 10:05

Paul Crowley wrote:

Will your self-employed as an accountant in practice be your main income? No, but this is a long term goal
Have you previously worked in an accountancy practice? Yes
If you have an accounting qualification, do you have a practicing certificate? Yes
Have you got PII insurance? Yes

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Replying to anapa:
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By Paul Crowley
23rd Jun 2020 14:41

Nobody knows everthing
The trick is to know when your knowledge stops and find out.
I remember listening to a "worker" answering client questions on CGT reliably informing said client that the CGT comp would include the loan interest as an expense. Said worker got really pi$$ed that I was trying to interrup. Later comment was ' he asked and I had to give him an answer. I did not want to look stupid' (I was not his senior)
Clients that are worthy do not expect instant answers and feel important if you need to research. Clearly a good question, not something everyone knows

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Replying to Paul Crowley:
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By Tax Dragon
23rd Jun 2020 16:06

Paul Crowley wrote:

The trick is to know when your knowledge stops and find out.

Also, knowing where to look (in the legislation if you can) - and actually looking when the question comes up, because a) the answer today is not always what it was yesterday [dispensations being a case in point] and b) memory is scarily unreliable.

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By Mr_awol
23rd Jun 2020 12:19

If you are starting out, and have limited support from more experienced peers, be careful with 'contractors'.

On the face of it, they are very simple clients - a couple of invoices a month, few expenses, smash out a set of limited company accounts and payroll and earn yourself upwards of £1200 p.a. for doing it. Great.

In reality, they often phone with many questions about their expense claims, they feel they should be able to claim all sorts of stuff (their mates are, and other firms allow it, etc). They hate paying tax and they feel they should be able to manipulate their position to draw c£100k out of their company via themselves/their wives whilst enjoying what is effectively very close to an employed position. God forbid their current engagement draws to a close they will bombard you with questions about 'going perm' and winding up the company, only to decide six months down the line that they don't like paying National Insurance and they want to go back to contracting.

And that £1200 or so wont go far, but you'll still be competing with the 'contractor specialist' sausage factories who will often roll out their services on the cheap with 'optimistic' expense claims whilst you try and do it properly, ending up charging more for a better service which ultimately costs the client more in taxes.

Personally I'd stick to 'proper' businesses if possible and avoid contractors, subbies, and most trades - three categories of client that look easy on the surface but whom will be comparing you against cheaper, less diligent, competition. This is difficult to do if you want to grow swiftly but should be possible for a sideliner business as you can pick and choose your prospects.

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Replying to Mr_awol:
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By anapa
23rd Jun 2020 12:26

Thanks for the advice, really appreciate you taking the time to type this up. This kind of advice is so useful to me at this early stage.

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