Expenses of the business that have been paid for personally may either be reimbursed by the company or, if not reimbursed, may be deductible for the individual against other income.

You can put any cost through your business, but it doesn’t mean that it is tax free. The rules can be complex with grey areas, so care needs to be taken to ensure you claim properly.

Where you incur expenses in the course of their employment:

• For the company, any cost incurred in reimbursing expenses will be deductible against Corporation Tax.
  
  
• For you or an employee, the position is often more complex, as explained below.
  
  

Non taxable

Where you incur expenses “wholly, exclusively and necessarily” for the purpose of your employment, amounts received will be free from tax or NICs. Similarly, if the expense is not reimbursed, a tax and NIC refund can often be claimed (usually via self-assessment).

The rules on relief can be restrictive. In particular, where expenses are partly for another job, or for personal reasons, relief may not be available. Whilst there may be grey areas, there are certain types of personal expenditure – such uniforms, protective clothing or business mileage – that can almost always be successfully claimed.

Taxable

If the expense is not wholly, exclusively and necessarily for the purpose of your employment, any reimbursement will give rise to income tax and NIC implications, as an employment benefit.

The specific tax implications will depend on a variety of
factors, including, whether the expense relates to travel and subsistence (including mileage allowance), home working expenses, whether the expense is reimbursed or a bill is instead paid on your behalf, to name a few.

These costs could be added to your director’s loan account to stop the benefit being taxable. However, you would need to repay this balance within 9 months of the company’s accounting period to avoid a 32.5% tax charge (albeit reimbursable if you put the money back into the company later).

Home working expenses

You and your employee may work regularly from home these days. This increases the cost of some home bills (e.g. heating, light, faster internet) and so HMRC allow an amount to be reimbursed to you that reflects the additional cost of working from home.

As a simple measure, paying yourself and employees, who regularly work from home under a formal arrangement, £6 a week or £26 a month requires no record keeping and the amount paid to you is tax free. If the cost of working from home is greater than £6 a week (£26 a month), then records need to be kept to prove the additional cost. Where this is done, again there should be no income tax or NICs on the additional payments. From April 2022, this can only be paid if you don’t have an office, there are no appropriate facilities available for the employee to perform their job on their employer’s premises or the employee’s job requires them to live far away from the office.

Mileage claims

Where you use your own car for business (excluding commuting to and from work), you can claim 45p for each business mile travelled up to 10,000 miles and 25p per mile thereafter, without income tax consequences.

An additional optional 5p per mile can be paid where you have “car pooled” with a fellow employee or director. Similarly, for motorcycles 24p per mile can be paid, and for bicycles 20p per mile can be paid, tax free.

The company can also claim a tax deduction for mileage payments paid to employees.

Congestion charge – company car

If you incur the congestion charge whilst travelling to London using your company car, you can put the cost of the charge through the business.

Business travel

Travelling to and from “the office”

Ordinarily, you are unable to put the costs of commuting to and from the office through the business. This applies to the cost of petrol or public transport, as well as claiming back 45p per mile as detailed above.

So, can I claim for the costs of going to the office if I usually work from home or only go to the office on an infrequent basis?

Your business address is deemed to be your “office”. It is your main place of business that you regularly or usually attend even if it is infrequently. If you choose to work at home and do not go into the office very often, this doesn’t change the fact that you are commuting to your workplace when you do go into the office (provided that is the place you usually attend for all of your employment). There are some exceptions to this that you should be aware of:

Late night working costs

If you need to get a taxi home from the office as you have been working late (until at least 9pm), you can get the business to pay for the taxi to get home without any tax implications. This must be irregular; you are required to work late for a business reason and where the public transport has stopped or unreasonable to use it. This can be used up to 60 journeys per year and has no maximum amount per journey.

Failed car share arrangement

This also applies if car sharing arrangements fail after you have arrived at work due to unforeseen circumstances.

For example. if your lift home with another director or employee isn’t possible as they have had to go home due to illness, this would also apply.

Public travel costs

You can claim for the cost of public transport costs if travelling for business such as client meetings or to attend an industry conference.

Private travel versus public transport

As outlined above, you can claim for the private usage of your personal car if you travel for business.

It is a commercial decision as to whether you travel in your car or take public transport. Usually this will be considered based on cost, location, travel time, equipment taken and time of day.

As an example, it may be cheaper to take the train to Birmingham but it is necessary to take the car instead as you are required to take some equipment with you and the combined cost of public transport and courier costs are more than the cost of claiming mileage back.

Another example may be that the location of the business meeting is in the middle of the countryside so public transport will be ruled out.

First class travel versus standard class travel

Generally, the cost of the business travel will not normally have any bearing on whether or not tax relief can be claimed.

A claim for business class travel over standard class wouldn’t be denied if it was necessary for the journey.

Here are some examples where first/business class travel is necessary:

• You were travelling with a client who is booked on first/business class travel.
  
  
• You are travelling on a long journey, so you need more space for comfort – say to sleep whilst on the journey ahead of a meeting when you arrive at your destination.
  
  
• You require privacy and space to carry out your work whilst using public transport – say you require a desk for your laptop and place for your files whilst working which is only possible in first class.
  
  

However, you are unable to claim where the arrangements are unusually lavish or to reward an employee as there is a question as to whether the expenditure is genuine business travel.

Airport lounges

Following the above points, an airport lounge could be claimed as a business expense if required for commercial purposes. An example could be that you need space and privacy to carry out your work whilst waiting for your flight.

Taxi versus public transport

You could also claim for the cost of a taxi if you were unable to take public transport. This may be due to speed, time of the day, location or equipment taken.

There must be a commercial reason for claiming the taxi over public transport to claim the cost back.

For example, you couldn’t claim the cost of taking a taxi for a 10-mile journey during the day which you could easily take a train instead and had no reason to take the taxi apart from the fact you prefer not to use a train.
However, you could claim a taxi to your hotel when arriving in London if you had a large suitcase containing clothing for a week of business meetings as it would be unsafe and impractical to use the tube.

Personal element

If your travel involves any personal element, it is still eligible if the purpose of the travel is for business and does not involve a detour.

For example, you travel to London for the day for a work conference and meet a friend for a coffee before you head home. You can still claim the cost of the train travel provided the reason to travel to London is for business.

Another example could be that you travel to London for a work conference on a Friday and decide to stay in London over the weekend as a holiday. You book your train ticket back home for the Sunday evening when your break ends.

This would be possible to claim the cost of travel as business provided the main reason for going to London was for the work conference. You wouldn’t be able to claim any expenses for food or accommodation after the event finished.

Travel to a temporary workplace

You are unable to claim back the costs of commuting to your office. However, you can claim for travel to a workplace which you don’t do go to regularly or for short periods of time.

An example may be that you are required to work at head office for occasional meetings or you need to work at another new office for a set period of time to get the office up and running.

If you are responsible for an area over which you perform duties, then the travel expenses for covering that area are allowable such as a regional director travelling to different business premises. The travel to various sites does not constitute ordinary commuting as none of the locations would be considered permanent places of work.

32 Ways To Save Tax and Extract Maximum Value From Your Business

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