Subsistence is a big problem area in tax. Subsistence is defined as ‘food and drink but not the cost of transport’. Many clients incorrectly assume that if you are working and buy a lunch or grab a snack when re-fuelling the car or van that this is fine to claim against your tax bill. It’s also important to understand that subsistence is only ever tax deductible when it accompanies allowable travelling expenses.
In general you can’t usually claim food and drink. Think of it this way. Before you set up in business and were employed by someone, did they pay for your lunch? If you worked in an office or factory you probably brought in your own packed lunch. So why, just because you are in business, should you be allowed to claim for lunch? The basic rule is simple as far as HMRC is concerned.
“The cost of food, drink and accommodation is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live.”
However, in the real world things are not so simple and depend on what category of worker you are.
Employees and directors
Subsistence can be claimed by the company for employees (and directors) in specific circumstances where the:
- travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting.
- employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours.
- employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure.
Subsistence paid outside of these conditions could be deemed a taxable benefit giving rise to income tax and national insurance liabilities.
The amount exempt from tax is the actual expenditure, evidenced by a receipt wherever possible.
For example, if your office is in Rochester and whilst travelling to a site in Dover you grab a McDonalds en route then the expenditure is fine. Equally, if you go to a site in Dover, then take an hour’s break and grab lunch, HMRC would allow the subsistence because the cost was incurred during a journey of more than 5 hours away from your normal place of work.
If you travel from Rochester to several sites around the Medway towns lasting more than 5 hours (e.g. a director plumber or director electrician) then you can claim your lunch.
Conversely if you travel to your office and grab food on the way, although the subsistence is incurred during a journey, that journey is part of your normal commuting to work and does not qualify. If claimed the expense would be taxable on the individual as a benefit in kind.
There are also four very important additional rules:
- If you have to stay overnight on business then there are specific rules which allow both your accommodation and subsistence as a tax deduction. You can also have a fixed amount of £5 per night (£10 if abroad) for incidentals, such as laundry, newspapers and telephone calls
- Expenditure on staff Christmas parties and other annual events are exempt, provided you spend under £150 per head per year (including VAT)
- Expenditure on occasional staff gatherings of up to £50 per head per time are exempt under the trivial benefit rules. There is a limit of 6 times this can be claimed for directors, comprising gifts such as vouchers
- You go out to lunch with a client. This is entertaining and therefore not tax deductible for corporation tax but is a justifiable business expense.
For genuine subsistence costs you can pay your employees a flat rate sums as follows:
Minimum Journey time
|Maximum amount of meal allowance|
|15 hours (and ongoing at 8pm)|
Benchmark scale rates must only be used where all the qualifying conditions stated above are met. It is not necessary for receipts to be kept but you should have an appropriate checking system in place.
Self employed, partners and LLP members
Reasonable amounts of food and drink costs may be tax deductible in the following cases:
- Where a business is by its nature itinerant (for example in the case of commercial travellers), or
- Where occasional business journeys outside the normal pattern are made.
A leading tax case in the area of travelling and subsistence is Dr Samad Samadian v HMRC which considered the nature of journeys outside the normal pattern.
In that case a doctor’s expenses incurred travelling between his home and private hospitals were disallowed. Although as with all such cases the facts and findings are complicated, a simplified summary of the outcome was that because he made regular journeys to the same hospitals on the same days each week the journeys could not be classed outside the normal pattern.
Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are tax deductible.
The same treatment may be extended to traders who do not use hotels, for example, self-employed long distance lorry drivers who spend the night in their cabs rather than take overnight accommodation.
In conclusion, the self employed will only get tax relief on their food and drink if their business is travelling by nature or they are on an exceptional business trip.
Still not sure? Then please call us or contact Jan Friend. We’ll be happy to review any specific scenario and give you our honest opinion.
In the meantime, here are our top tips to ensure your subsistence claims are fine:
- A lot of subsistence expenditure is borderline. Our advice is to be sensible in what you claim. A few claims which are questionable are likely to go unnoticed but a lot of claims which are questionable could leave you at risk if the taxman visits.
- Make sure you keep supporting documentation and receipts for all subsistence expenditure.
- Keep a diary to prove where you went on business. Alternatively your mileage log book would be fantastic to support your claims.
The content in this blog is correct as at 23rd October 2018. See terms and conditions.