Travel Expenses And Uk Taxes: What You Should Know

Whether or not you pay tax on travel expenses in the UK depends on the purpose of your travel. If you are travelling for business purposes, you may be able to claim tax relief on the cost of money spent on food, accommodation, public transport, congestion charges, tolls, business phone calls, and printing costs. However, if your travel is for private, personal reasons, you cannot claim tax relief. It is also important to note that travel between an employee's home and permanent workplace is generally regarded as private travel and is not eligible for tax relief.

Tax on travel expenses for employers

As an employer, if you pay your employees' travel costs, you have certain tax, National Insurance, and reporting obligations. This includes costs for accommodation and meals, as well as other 'subsistence' expenses incurred while travelling.

There are different rules for reporting expenses related to public transport. If your employee needs to stay away overnight, you may be required to cover the cost of their accommodation. Additionally, you may need to reimburse them for meals and other necessary costs, such as parking charges, tolls, congestion charges, or business phone calls. These are all considered 'subsistence' expenses.

It is important to note that you must report your employees' travel expenses to HM Revenue and Customs (HMRC) unless it is exempt. In some cases, you may have to deduct or pay tax and National Insurance on these expenses. However, there are exemptions for certain business travel expenses, which means you won't need to include them in your end-of-year reports. If you do not have an exemption, you must report the cost on form P11D, but you won't have to deduct or pay any tax or National Insurance.

If you reimburse your employee for more than the necessary costs of their business travel, the extra amount is considered earnings. In this case, you must add it to your employee's other earnings and deduct and pay PAYE tax and Class 1 National Insurance through payroll.

Tax relief for employees

In the UK, employees can claim tax relief on certain expenses incurred while performing their work duties. Here are some key points about tax relief for employees:

Types of Expenses

Employees can claim tax relief on expenses directly related to their work, such as business travel, accommodation, meals, and "subsistence." Subsistence includes meals, parking charges, tolls, congestion charges, and business phone calls. Employees can also claim tax relief on business mileage if they use their private vehicle for work. It is important to note that ordinary commuting, i.e., travelling between home and a permanent workplace, is not usually claimable unless it is for a temporary workplace.

Work Clothing and Tools

Employees can claim tax relief on the cost of repairing, cleaning, or replacing work uniforms, specialist clothing, or protective gear. This includes items such as safety boots or a branded uniform with the company logo. Additionally, tax relief can be claimed on small tools required for work, such as an electric drill or scissors.

Professional Fees and Subscriptions

Professional fees and subscriptions required to carry out one's profession are also claimable. HMRC provides a list of approved professional organisations on their website.

Working from Home

Employees who are required to work from home by their employer may be able to claim tax relief on additional household expenses. This includes a proportion of their gas and electricity bills, as well as business phone calls. During the coronavirus pandemic, the rules were relaxed, allowing those who worked from home part-time to claim tax relief on £6 per week for the full tax year. However, this easement ended on April 6, 2023.

Claim Process

To claim tax relief, employees need to complete a P87 form and send it to HMRC by post. They can claim for the current tax year and the previous four tax years. For hotel and meal expenses, receipts are required, including the date and the name of the establishment.

It is important to note that tax relief is only available to taxpayers. If an employee does not earn more than the personal allowance, they cannot obtain tax relief as they have not paid any tax. Additionally, if an employer reimburses expenses, the employee cannot claim tax relief as they have not personally incurred the expense.

Business travel expenses

According to HMRC, only two types of travel qualify as 'business' trips: journeys that are an inherent part of an employee's duties, such as a delivery driver or meter reader; and journeys to a temporary workplace or site outside of the regular commute, where attendance is necessary for the performance of an employee's duties.

Ordinary commuting, or travel between an employee's home and permanent workplace, does not count as business travel and is therefore not tax-deductible. A permanent workplace is the place where an employee regularly works, such as an office or shop, whereas a temporary workplace is somewhere an employee attends irregularly or for a limited period. For example, an employee based in Birmingham might occasionally work in a store in Leicester for a year; in this case, the Leicester store would be considered a temporary workplace.

If an employee has to travel for work, they may be able to claim tax relief on costs such as public transport, hotel accommodation, congestion charges, tolls, business phone calls, and printing costs. If an employee is not reimbursed by their employer for these expenses, they may be able to get tax relief. However, it is important to note that there are strict rules around what qualifies for tax relief, and ordinary commuting is generally not included.

Employers are required to report all travel expenses paid to employees during the year, unless they are paying HMRC's advisory rates or have obtained a specific exemption. Some expenses, like fuel and meals, have fixed rates, and if employees are reimbursed at higher rates, these become earnings and are subject to tax and National Insurance. To be deductible, expenses must be 'wholly and exclusively incurred' for business purposes.

For both companies and individual employees, it is financially beneficial to track and claim tax relief on business trips where possible.

Travel expenses for self-employed people

If you're self-employed, you can deduct some of your running costs to work out your taxable profit as long as they're allowable expenses. These include travel costs, such as fuel, parking, train or bus fares.

You can claim allowable business expenses for repairs and servicing, vehicle licence fees, train, bus, air and taxi fares, and meals on overnight business trips. You cannot claim for non-business driving or travel costs, or travel between home and work.

If you have an entirely peripatetic working life and your business is run from home, there are no restrictions on deducting business journeys and related costs against tax. This includes motoring (on actual costs or mileage) and accommodation for overnight stays.

On the other hand, if a self-employed person has one or more regular places of work other than their home, HMRC deems this to be a permanent workplace, and thus the journey is commuting and not eligible for deduction.

You may be able to calculate your car, van or motorcycle expenses using a flat rate (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle.

Permanent vs temporary workplaces

In the UK, a workplace is defined as "a place at which the employee's attendance is necessary in the performance of the duties of the employment" (ITEPA 2003, s. 339(1)). This definition focuses on the purpose of the employee's attendance rather than the purpose of their journey.

A permanent workplace is a place where an employee works continuously for more than 24 months, or 40% of their working time. Travel between an employee's home and their permanent workplace is considered ordinary commuting and is not deductible.

A temporary workplace is a place where an employee performs a task of limited duration or for a temporary purpose. If an employee works at a temporary workplace, they can generally claim their travel expenses and subsistence costs when they work there, as they are deemed to be working away from their normal (permanent) place of work.

It is important to note that a temporary workplace can become a permanent workplace if certain rules are met, such as the 24-month rule or the fixed-term appointment rule. Therefore, it is necessary to regularly monitor the working arrangements to ensure compliance with tax regulations.

Employers who send employees out on assignments and pay for their travel and subsistence expenses should carefully consider whether the location is a temporary or permanent workplace for tax purposes. This determination will impact the tax deductibility of these expenses.

Frequently asked questions