Travel expenses for employees and directors – the do’s and don’ts
Travel can be a tricky area when it comes to claiming expenses. With so many ways to get about, and blurred lines on when a journey is business or private, it is important to know what can and cannot be claimed for, and at what rate.
For these expenses, there is no difference between the treatment for directors and employees. Both are subject to PAYE and National Insurance Contributions (NICs) on expenses that do not qualify as legitimate business expenses.
What counts as business travel?
There are two types of journey that constitute ‘business travel’ that can be claimed as an expense:
- Journeys that form part of an employee’s duties.
- Journeys related to an employee’s attendance at a temporary workplace.
Travel to and from an employee’s normal place of work, as well as parking to attend that place of work, do not count as business travel.
If you reimburse employees more than the actual cost they incurred for their business travel, the additional amount is viewed as part of their earnings. All earnings must be paid through the payroll so PAYE and National Insurance Contributions (NICs) can be deducted.
Expense claims can be made for public transport on rail, bus, ferry, river boat, underground, metro or tram services.
Rail season ticket holders can only claim for journeys not covered by their season ticket – and receipts/tickets should be retained to make the claim.
It is important to note that almost all public passenger transport is zero-rated so there is no VAT to claim back. Taxis are an exception to this rule and are generally standard rated – although there is a good chance that the driver may not be VAT registered, so you won’t be paying VAT on your fare in any case.
Parking expenses can be claimed for both vehicles that are owned personally and those owned by a business when the vehicle is used for business purposes. A payment receipt for parking should be retained to support the claim. Parking fines cannot be claimed as a business expense.
For employees using their own car, expenses can be calculated using the Mileage Allowance Payments (MAP) outlined by HMRC.
If you are self-employed or a limited company director you can calculate car, van or motorcycle expenses using a MAP for mileage, instead of the actual costs of buying and running a vehicle. This cost is submitted to your business as an expense claim and is accounted for as a day-to-day running cost of the business.
Mileage reimbursement rates for electric and hybrid cars differ from normal car mileage. For more information please see our FAQ on what travel expenses can be claimed for these vehicles.
If a company owns a car it would normally pay the running costs of the car as a day-to-day running cost of the business. The costs can reduce the company’s profit and therefore it’s corporation tax bill. The company could also claim capital allowances on the cost of buying the car.
It is worth keeping in mind that a car is a taxable benefit, unless it is only used for business journeys and remains on company premises at all other times. If it’s used for private journeys, the employee must pay income tax on the value of the benefit (employers also pay class 1A NICs).
In providing company cars and fuel to your employees, you have National Insurance reporting obligations. You will need to report company cars used for private journeys, and also a fuel scale charge if fuel is provided for private journeys.
Cars and fuel provided as part of a salary sacrifice agreement must also be reported to HMRC.
Calculating the benefits of company cars vs private cars and running costs for each can be complicated. It is best to seek advice from an accountant if you are considering providing a company car.
If employees are required to travel and stay away for work purposes, costs for overnight accommodation can be reclaimed. Reasonable costs for food and drink can also be reclaimed, although alcohol will only be covered with a meal.
Trips away from your normal place of work must have a clear business purpose to be considered by HMRC as a genuine claim. Business trips can be extended to do shopping or sightseeing, providing the primary purpose of the trip remains as business. In this case only the additional cost of the private element of the trip will be taxable for the employee.
For all businesses, there should be a system in place for checking the legitimacy of expense claims and payments. Employee and director expenses are constantly the subject of HMRC focus. For expense claims that cannot be demonstrated as being business related PAYE and NIC interest and must be paid.
In all cases, it is important to keep accurate and detailed business records that could support your claim if HMRC raise any queries.