When working out the profits of your business, you can deduct any allowable expenses that you incur in running your business. The more expenses you deduct, the lower your taxable profit and the less tax you pay. In most people’s books that is a good thing! It is important, therefore, that you claim a deduction for all allowable expenses.
Travel and Subsistence Expenses
Expenses are deductible to the extent that they are incurred wholly and exclusively for the purposes of the business. This general test applies equally to travel and subsistence expenses as to other types of business expenses. Expenses which may fall into this category include vehicle expenses, train, bus car and air fares, the cost of hotels and other overnight accommodation, and the cost of meals.
No deduction is available for non-business driving or travel costs, fines (such as parking fines) or for travel between home and work.
Home to Work Travel
The cost of travelling between home and work is not deductible in computing taxable profits. Such expenditure is private expenditure rather than business expenditure. The choice of where to live is a personal choice, and the journey from home to work is determined by the taxpayer exercising his or her choice as to where to live. It does not matter when the taxpayer does some work at home; this in itself is not sufficient to make the journey from home to work a business journey.
Also, stopping off, say, to drop off something with a client, or to go to the post office to post a business letter, does not make the journey home one incurred wholly and exclusively for the purposes of the trade. The main purpose is to go home after work.
There is need of identifying the base from which the trade or profession is carried on in order to determine the extent to which travel expenses are deductible, it is necessary to identify the base from which the taxpayer carries on his trade, profession or vocation. To do this, it is necessary to look at the nature of taxpayer’s activities and how they are organised. For example, a Hairdresser carries on his or her trade from their shop, a baker from their Bakery shop, a Beautician from her Salon, etc.
Where it is possible to establish that home is the base of operations, travel from it for the purposes of the trade will be allowable as a business expense. If a Makeup artist travels to do makeup at her clients home. This expense would be allowable.
There is a difference between basing the operations at home and undertaking some work at home. For example, if an accountant had an office where he mostly worked and saw clients, but he did some paperwork at home, the office would be his base of operations and travel from home to the office would not be deductible. By contrast, if the accountant was based at home and sometimes visited clients at their premises, travel from his home to the client’s premises would be a deductible business expense.
Undertaking office work at home does not make home a business base, and the journey between home and ‘work’ an allowable expense.
Travel from home can be deducted as a business expense if home is the base of operations.
Mixed Private and Business Travel
A claim for a deduction of travel expenses will fail if there is duality of purpose. Where this is the case, no part of the travel will be deductible as none of it is incurred wholly and exclusively for the purposes of the trade.
Business trip and a holiday.
If a trader flies to a foreign country with her husband for the purpose of having a holiday and meeting with suppliers, the travel will have a dual purpose and a deduction will not be permitted. Travel expenses will only be allowable if incurred wholly and exclusively for the purposes of the trade. If on a business trip, the trader travelled from the hotel to visit the supplier and then back to the hotel, without also spending time, say, sightseeing, the associated travel costs will be deductible as incurred wholly and exclusively for the purposes of the trade.
Where possible try and make sure that business travel is separately identifiable from any personal travel to facilitate a deduction for the business travel.
However, if the private purpose is incidental to the business purpose, the deduction will be allowed. For example, if a trader attends an overseas conference, any private benefit obtained while attending the conference, such as enjoying the scenery or the food, will not compromise the deduction. The expenditure is allowable if the wholly and exclusively test is met.
Fixed Rate Deduction – Mileage claim
It is possible to save work by claiming a fixed rate deduction for mileage costs calculated by reference to the number of business miles driven in the year instead of a deduction for actual costs incurred.
The deductible amount is found by multiplying the number of miles of business journeys made in the vehicle in the tax year by the rate applicable for that type of vehicle.
The rates mirror the approved mileage allowance rates. The rates for 2019/20 are as set out in the table below.
Cars 45p per mile
Motorcycles 24p per mile
Bicycles 20p per mile
Lucy is self-employed as a mobile hairdresser and uses her car for her business. In 2019/20, she drives 12,000 business miles. To save work she opts to claim a fixed rate deduction for vehicle costs. The permitted deduction is £5,400 ((10,000 miles @ 45p per mile) + (2,000 miles @ 25p per mile)
Where a fixed rate deduction is claimed it is not possible to claim capital allowances as well for the cost of the car.
Once the mileage basis has been adopted for a particular vehicle, it must continue to be used while the vehicle continues to be used by the business. It is not possible to cherry pick the best basis each year. However, a different method can be adopted for different vehicles.
At Greenlight Accountancy we work with you to build your knowledge on claiming business expenses to minimise your tax bill. Contact us for more information on how to make similar savings in your business.
Greenlight Accountancy Team 😊