When you’re travelling for work, expenses like meals, accommodation, and incidentals can add up quickly. These necessary costs, known as subsistence expenses, are vital to keep in mind because they can be claimed back, reducing your overall taxable income.
Understanding how subsistence expenses work under UK law is not just about saving money—it’s about making the most of your financial resources while ensuring you comply with HMRC regulations. Whether you’re an employee or an employer, being informed about allowable claims can result in significant tax savings and less financial stress during business travel.
Knowing the rules for subsistence expenses can also help streamline your expense reporting and avoid costly mistakes.
In accounting, subsistence refers to the essential expenses employees incur during business-related travel, such as meals, accommodation, and minor incidentals. These costs, when directly linked to business duties and outside of normal commuting, can be reimbursed by the employer, often without being taxed.
For businesses, subsistence expenses are accounted for as part of operational costs, which can help reduce taxable profits. HMRC provides clear guidelines on allowable subsistence claims, ensuring that both employees and employers benefit from tax relief while maintaining compliance with legal requirements.
HMRC sets specific subsistence rates each year, which allow employers to reimburse employees for business-related travel expenses without incurring additional taxes. These rates ensure that both employees and employers adhere to fair and transparent guidelines while claiming meal and accommodation expenses during business trips.
For 2024, HMRC has updated these allowances to reflect reasonable costs incurred during travel, making it easier for businesses to stay compliant and for employees to recover their expenses.
Here are the HMRC-approved subsistence rates for 2024:
These rates allow businesses to manage employee expenses without burdensome paperwork or unnecessary taxation efficiently.
To claim subsistence allowances tax-free, certain conditions must be met according to HMRC guidelines. These rules ensure that expenses are genuinely incurred for business purposes and not for personal benefit. The main conditions focus on the nature of the travel, the duration away from the usual workplace, and the type of expenses incurred.
You can claim VAT on subsistence expenses under certain conditions. For VAT to be reclaimable, the subsistence expenses, such as meals, accommodation, or travel costs, must be incurred directly for business purposes and supported by VAT receipts. This means that businesses can recover the VAT portion of these expenses as long as they adhere to the rules set by HMRC.
It’s important to note that VAT can only be claimed on subsistence costs if the supplier is VAT-registered and the invoice clearly shows the VAT amount. However, there are limitations when it comes to international travel, as different countries have their own VAT regulations.
Subsistence expenses are sometimes deemed not allowable for tax purposes because they can include personal costs or expenses that don’t strictly qualify as necessary for business activities.
HMRC guidelines require that expenses must be incurred solely for business-related travel and not for an individual’s regular commute or personal benefit.
If subsistence costs fail to meet these criteria, they may be disallowed, meaning businesses cannot claim tax relief or VAT on them. This ensures that only legitimate work-related costs are claimed.
Here are common reasons why subsistence expenses may not be allowable:
Employers must report subsistence payments in accordance with HMRC guidelines to ensure compliance and avoid unnecessary taxation. If the payments fall within HMRC’s approved rates, employers do not need to report them on PAYE or deduct taxes.
However, if the subsistence payments exceed these standard rates, the excess amounts are considered taxable income and must be reported accordingly. Employers are responsible for maintaining accurate records, including receipts and proof of the business-related nature of the travel.
These records will be essential for annual tax reporting, typically via forms such as the P11D and P11D(b), which detail any taxable benefits and expenses provided to employees. Additionally, companies should ensure that their expense management systems track and verify these payments to prevent errors or misuse.
Subsistence expenses for self-employed individuals or those working from home are treated differently from traditional employee expenses. While employees can claim subsistence for business-related travel, self-employed individuals can only claim these costs if the travel is exclusively for business purposes and not for personal or commuting reasons.
For those who work from home, claiming subsistence expenses is more restricted. Meals consumed at home, even during work hours, are generally not allowable.
However, if a self-employed person travels away from their home office for business—such as meeting clients or attending a conference—then they may claim subsistence expenses like meals and accommodation, provided they meet HMRC’s qualifying conditions.
It’s essential to keep detailed records and receipts to substantiate these claims and avoid disallowance.
Subsistence expenses, including meals, accommodation, and incidental costs incurred during business travel, can often be claimed back and may even be exempt from taxes if handled properly. By staying informed on HMRC’s guidelines, including the approved rates and necessary conditions for claims, businesses, and individuals can benefit from tax relief and improve financial efficiency.
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