Contractor and Employee Expenses

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We often get asked about what an employee or Contractor (who is an employee of a Ltd Company) can claim in the way of expenses while on business travel away from their normal place of work.

Firstly it is important to understand if the employee is away from their permanent place of work or at a temporary workplace. A temporary workplace is defined as “somewhere the employee only goes to perform a task of limited duration or for a temporary purpose”. The full rules are here:

A temporary workplace also has a 24 month rule that prevents it becoming long term. As soon as it becomes apparant that the assignment will go beyond 24 months the workplace ceases to be temporary.

Why is this important? Well employees are not normally allowed to claim tax relief for commuting costs or costs while they are at work. When on business travel or on travel to a temporary workplace they can claim tax relief for travelling costs and for costs incurred while they were away. These costs must be costs incurred, ie the money must be spent. If an employer pays someone for the cost of a hotel but they stay with a friend this payment is just treated as extra wages.

There is one additional allowance which is for incidental expenses on overnight stays. An employer can provide up to £5 a night while staying overnight in the UK and £10 while staying abroad for out of pocket expenses. Otherwise the payments must be for costs actually incurred.

All this means that in practice a Contractor on a one year contract can claim their travel costs (either the actual costs of public transport or the fixed mileage rates for a using a private car) and also claim the actual cost for lunch if they buy it while at the workplace. Round sum allowances are not allowed and as soon as a contract is extended over 24 months these claims will have to stop.

For any more information on this complex area please give us a call. 

John McLaughlin Chartered Accountant Scotland

John McLaughlin

Sutherland Black are plain talking accountants based in Scotland. We’ll support your business growth and goals. Talk to John today for friendly yet expert accounting advice.

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