Contractors' Questions: Do I claim what dinner cost me or a fixed sum?
Contractor’s Question: When I work away from home on a contract I claim expenses through my limited company for accommodation costs, but can I also claim £5 per working day per diem for subsistence? Or do I just claim what the food or meal actually cost me? And would I need to keep receipts for the purchased subsistence if I did claim?
Expert’s Answer: Claiming expenses is a common query for many contractors. The rules specify that an expense (other than travel) is allowable if it is “wholly necessarily and exclusively” incurred by the business.
If an expense is allowable, it will be reported in the losses which in turn will reduce company profit and thus reduce the liability to corporation tax (the only exception to this is business entertaining). If the expenses have been incurred personally, you can be reimbursed by the company and there is no income tax on the reimbursement.
When it comes to the specifics on accommodation and subsistence, you are able to claim for these costs when you have to be away from your usual place of work. If this requires for you to stay overnight in a hotel, these costs can be claimed too. Remember though, accommodation should only be claimed if you are actually having to stay away for work purposes, and the amount claimed should be proportionate to the business
Regarding your query about subsistence, we recommend that there is no set daily amount to claim. Rather, the expense should be proportionate (as it should be for accommodation) to the business. So if your day rate is £150, it would be disproportionate to claim for a meal costing £200! And yes, you will need to provide evidence of the expense (i.e. a receipt).
Often, accounting firms will apply for a dispensation that negates the necessity of providing HM Revenue & Customs the evidence of specific expenses up to a set threshold. However, HMRC has recently clamped down on umbrella companies, notably since the Reed case, amid concern that some have been using there dispensation as a means of paying contractors extra. The dispensation will be for a set amount, but this does not mean you can claim this amount; it simply means HMRC will give the benefit of the doubt for amounts up to the dispensation. Above the fixed amount, HMRC will still want to see receipts. If, for example, a company had a dispensation up to £10 per day, it would be highly unlikely that the subsistence would be exactly £10 every day. As a result, we advise that it is the cost of the subsistence itself that should be incurred.
As to when to claim, a good rule of thumb for you, the contractor, to remember is that subsistence can be claimed if you are away from your usual place of work for a meal (breakfast, lunch or dinner). When in a permanent job, it is easy to define one’s usual place of work. If however you are a contractor, your usual place of work is defined as a location that you spend 60% or more of your time.
For example, if you worked five days per week, 9-5 in one office location -- let’s say in Canary Wharf -- your usual place of work would be Canary Wharf. As your usual place for your lunchtime meal would be Canary Wharf, this would mean you could not claim for lunch unless you were away from Canary Wharf for work purposes. If though you had to arrive early for work purposes (i.e. an early morning meeting at 7am), you would be away from your usual place for breakfast (home) and thus able to claim for your breakfast (subsistence). This would also apply to your evening meal if you needed to stay late (note: you are allowed to claim for a single beer or glass of wine with your evening meal).Taking these examples, you can now apply the same rules in the circumstances you have to stay overnight for work purposes.
I’ve outlined the contractor expenses rules in place at present. However, you should be aware that HMRC currently has a ‘discussion document’ (a consultation in all but name), in which they are looking at penalising contractors by no longer letting them claim expenses for subsistence and travel.
For now though, I advise you to remember that with expenses, each individual contractor’s circumstances are different. So I recommend you seek advice tailored to the specifics of your own unique situation to ensure you are claiming the maximum you can, legitimately, and so you know exactly what records to keep.
The expert was Martin McKechnie, a director at contractor accountancy specialists The Low Tax Group.