Travel and subsistence tax relief

What is it?

Limited company directors, including independent professionals working through their own limited companies (which HMRC call Personal Service Companies (PSCs), can currently claim tax relief on their travel and subsistence expenses.

This means in many cases they can legitimately offset costs incurred when travelling to and from their clients’ premises and, when those premises are a long way from their base, they can also claim for temporary accommodation and food costs.

All expenses must be wholly and exclusively business related and also considered ‘reasonable’. 

What are the issues?

1.The 24 month rule

You can only claim expenses for travel to the same location for up to 24 months. That’s because the relief is to support workers who have to travel to a temporary workplace. After 24 months, a workplace is seen as permanent – unless the person spends less than 40 per cent of their work time there.

It’s important to remember that once it becomes clear your engagement will last over 24 months, you can’t keep claiming for travel. So, if it looks like you’re going to be in a post for two years, you may not be able to claim for all that time. And if, for example, you start working on a three-year engagement, you won’t be able to claim for any of that time – not even the first 24 months.

2.IR35 implications

Now, because the Government has aligned Travel and Subsistence tax relief rules with IR35, if you are caught by IR35 you can’t claim tax relief for travel.

This may have immediate implications for contractors in the public sector because the Government has recently tightened IR35 regulations for them, meaning many may find themselves unable to claim tax relief for travel.

Take a look at our IR35 page for more information on these rules.