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7 Rules You Should Know About Deducting Business Travel Expenses

• What Is Your "Tax Home"?

Charges on Your Hotel Bill

The 50% rule for meals, the cost of bringing a spouse, friend or employee.

• Using Per Diems To Calculate Employee Travel Costs

Combined Business/Personal Trips

International business travel.

• The Cost of a Cruise (Within Limits)

Frequently Asked Questions (FAQs)

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The IRS has a specific definition for business travel when it comes to determining whether these expenses are tax deductible. The agency says business travel is travel that takes you away from your tax home and is "substantially longer than an ordinary day's work." It requires that you sleep or rest while you're away from home, and that you do so. The travel must be "temporary." This means it can't last a year or more.

Key Takeaways

• You can deduct expenses that take you away from your tax home for a period of time that would require you to spend the night.
• Your tax home is the city or area where your regular place of business is located.
• You’re limited to 50% of the cost of your meals.
• Your trip must be entirely business-related for costs to be deductible, but special rules apply if you travel outside the U.S.

What Is Your "Tax Home"?

Your tax home is a concept set by the IRS to help determine whether a trip is tax deductible. It's defined by the IRS as the entire city or general area where your regular place of business is located. It's not necessarily the area where you live. 

Your tax home can be used to determine whether your business travel expenses are deductible after you've determined where it's located. You can probably count your expenses during travel as business deductions if you have to leave your tax home overnight or if you otherwise need time to rest and sleep while you're away.

Check with a tax professional to make sure you're accurately identifying the location of your tax home.

Charges for your room and associated tax are deductible, as are laundry expenses and charges for phone calls or for use of a fax machine. Tips are deductible as well. But additional personal charges, such as gym fees or fees for movies or games aren't deductible.

You can deduct the cost of meals while you're traveling, but entertainment expenses are no longer deductible and you can't deduct "lavish or extravagant" meals. 

Meal costs are deductible at 50%. The 50% limit also applies to taxes and tips. You can use either your actual costs or a standard meal allowance to take a meal cost deduction, as long as it doesn't exceed the 50% limit.

The cost of bringing a spouse, child, or anyone else along on a business trip is considered a personal expense and isn't deductible. But you may be able to deduct travel expenses for the individual if:

• The person is an employee
• They have a bona fide business purpose for traveling with you
• They would otherwise be allowed to deduct travel expenses

You may be able to deduct the cost of a companion's travel if you can prove that the other person is employed by the business and is performing substantial business-related tasks while on the trip. This may include taking minutes at meetings or meeting with business clients.

Using Per Diems To Calculate Employee Travel Costs 

The term "per diem" means "per day." Per diems are amounts that are considered reasonable for daily meals and miscellaneous expenses while traveling. 

Per diem rates are set for U.S. and overseas travel, and the rates differ depending on the area. They're higher in larger U.S. cities than for sections of the country outside larger metropolitan areas. Companies can set their own per diem rates, but most businesses use the rates set by the U.S. government.

Per diem reimbursements aren't taxable unless they're greater than the maximum rate set by the General Service Administration. The excess is taxable to the employee.

If you don't spend all your time on business activities during an international trip, you can only deduct the business portion of getting to and from the destination. You must allocate costs between business and personal activities.

Your trip must be entirely business-related for you to take deductions for travel costs if you remain in the U.S., but some "incidental" personal time is okay. It would be incidental to the main purpose of your trip if you travel to Dallas for business and you spend an evening with family in the area while you're there. 

But attempting to turn a personal trip into a business trip won't work unless the trip is substantially for business purposes. The IRS indicates that “the scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip."

The rules are different if part or all of your trip takes you outside the U.S. Your international travel may be considered business-related if you were outside the U.S. for more than a week and less than 25% of the time was spent on personal activities. 

You can deduct the costs of your entire trip if it takes you outside the U.S. and you spend the entire time on business activities, but you must have "substantial control" over the itinerary. An employee traveling with you wouldn't have control over the trip, but you would as the business owner would.

 The trip may be considered entirely for business if you spend less than 25% of the time on personal activities if your trip takes you outside the U.S. for more than a week.

You can only deduct the business portion of getting to and from the destination if you don't spend all your time on business activities during an international trip. You must allocate costs between your business and personal activities.

The Cost of a Cruise (Within Limits) 

The cost of a cruise may be deductible up to the specified limit determined by the IRS, which is $2,000 per year as of 2022.  You must be able to show that the cruise was directly related to a business event, such as a business meeting or board of directors meeting.

The IRS imposes specific additional strict requirements for deducting cruise travel as a business expense.

How do you write off business travel expenses?

Business travel expenses are entered on Schedule C if you're self-employed . The schedule is filed along with your Form 1040 tax return. It lists all your business income, then you can subtract the cost of your business travel and other business deductions you qualify for to arrive at your taxable income.

What are standard business travel expenses?

Standard business travel expenses include lodging, food, transportation costs , shipping of baggage and/or work items, laundry and dry cleaning, communication costs, and tips. But numerous rules apply so check with a tax professional before you claim them.

The Bottom Line

These tax deduction regulations are complicated, and there are many qualifications and exceptions. Consult with your tax and legal professionals before taking actions that could affect your business. 

IRS. " Topic No. 511: Business Travel Expenses ."

IRS. " Publication 463 (2021), Travel, Gift, and Car Expenses ."

IRS. " Here’s What Taxpayers Need To Know About Business-Related Travel Deductions ."

Everything You Need to Know About the Business Travel Tax Deduction

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.

What counts as business travel?

The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:

• Mostly business
• An “ordinary and necessary” expense
• Someplace far away from your “tax home”

What counts as "mostly business"?

The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.

Special rules for traveling abroad

If you are traveling abroad for business purposes, you trip counts as " entirely for business " as long as you spend less than 25% of your time on personal activities (like vacationing). Your travel days count as work days.

So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.

Good news: Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.

What is an “ordinary and necessary” expense?

“Ordinary and necessary” means that the trip:

• Makes sense given your industry, and
• Was taken for the purpose of carrying out business activities

If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.

What is your tax home?

A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.

Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:

• What's your main place of business, and
• How large is your tax home

What's your main place of business?

If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.

For example, say you:

• Live with your family in Chicago, but
• Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)

Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.

How large is your tax home?

In most cases, your tax home is the entire city or general area where your main place of business is located.

The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.

Rules for business travel

Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.

1. Your trip should take you away from your home base

A good rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.

2. You should be working regular hours

In general, that means eight hours a day of work-related activity.

It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.

Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!

3. The trip should last less than a year

Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!

For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.

What about digital nomads?

With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.

Requirement #1: A tax home

Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.

For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.

Requirement #2: Some work-related reason for traveling

As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.

However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.

The travel expenses you can write off

As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).

Here are some common travel-related write-offs you can take.

🛫 All transportation

Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.

Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.

If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses .

Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.

🥡 Meals while traveling

If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.

One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.

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🌐 Wi-Fi and communications

Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.

If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.

👔 Dry cleaning

Need to look your best on the trip? You can write off related expenses, like laundry charges.

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Travel expenses you can't deduct

Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.

The cost of bringing your child or spouse

If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.

You can only deduct travel expenses if your child or spouse:

• Is an employee,
• Has a bona fide business purpose for traveling with you, and
• Would otherwise be allowed to deduct the travel expense on their own

Some hotel bill charges

Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.

Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:

• Gym or fitness center fees
• Movie rental fees
• Game rental fees

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Where to claim travel expenses when filing your taxes

If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.

What happens if your business deductions are disallowed?

If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:

• The deduction was not legitimate and shouldn't have been claimed in the first place, or
• The deduction was legitimate, but you don't have the documentation to support it

When does the penalty come into play?

The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10% less.

In practice, you would only reach this 10% threshold if the IRS disqualified a significant number of your travel deductions.

How much is the penalty?

The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.

In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.

Justin W. Jones, EA, JD

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5 years ago

Travel and subsistence for directors, what you need to know.

Travel and subsistence costs are one of the most troublesome areas for business owners and company directors. 

At PGM we’re here to help, by giving you the run down on travel and subsistence costs.

So what exactly is ‘Travel and Subsistence’?

Travel and subsistence is defined as “ any accommodation, food and drink costs that you incur whilst you are away from your permanent workplace while working for the company”. These expenses are tax deductible when they are incurred wholly and exclusively for the purpose of your business, trade, profession or vocation.

It’s worth noting that food and drink purchased close to your company’s premises does not meet the criteria of ‘work related’.

Claiming your subsistence expenses

Subsistence expenses can only be claimed under the rules for claiming travel. This means that they must be incurred in direct conjunction with being required to travel for work. The hard and fast rule is that an expense must also be ‘reasonable’ . A typical scenario could be claiming lunch on an airport connection or dinner expenses when required to stay overnight at a hotel.

Proximity and timing is important

Expenditure incurred shortly after leaving home, or arriving home is disallowed by HMRC, as this is deemed a personal choice and not seen as a necessity.

Allowable subsistence costs

Subsistence costs incurred while making client or supplier visits, occasional onsite working or travel to and from events and training courses fits the criteria of allowable travel expenses. However inviting your client for a dinner would be treated as client entertaining and that is specifically not tax deductible.

Tracking your travel and subsistence expenses.

Gone are the days of frantically trying to find that receipt, wedged in your work diary or hidden somewhere in your wallet or purse to claim that expense. At PGM we offer bookkeeping and digital record tracking, making your accounts preparation more efficient and therefore making your business more efficient. Save time by recording expenses in real time through your smartphone with our digital solutions.

Just click here to book a free 30 minute business consultation with our team and learn more about the benefits of our cloud accounting solutions.

How to Deduct Travel Expenses (with Examples)

Reviewed by

November 3, 2022

This article is Tax Professional approved

Good news: most of the regular costs of business travel are tax deductible.

Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).

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Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.

Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line.

The travel needs to qualify as a “business trip”

Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business purposes.

Here’s how to make sure your travel qualifies as a business trip.

1. You need to leave your tax home

Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.

2. Your trip must consist “mostly” of business

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.

For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.

3. The trip needs to be an “ordinary and necessary” expense

“Ordinary and necessary ” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.

If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.

Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.

What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. if the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties .

4. You need to plan the trip in advance

You can’t show up at Universal Studios , hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.

Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.

The rules are different when you travel outside the United States

Business travel rules are slightly relaxed when you travel abroad.

If you travel outside the USA for more than a week (seven consecutive days, not counting the day you depart the United States):

You must spend at least 75% of your time outside of the country conducting business for the entire getaway to qualify as a business trip.

If you travel outside the USA for more than a week, but spend less than 75% of your time doing business, you can still deduct travel costs proportional to how much time you do spend working during the trip.

For example, say you go on an eight-day international trip. If you spend at least six days conducting business, you can deduct the entire cost of the trip as a business expense—because 6 is equivalent to 75% of your time away, which, remember, is the minimum you must spend on business in order for the entire trip to qualify as a deductible business expense.

But if you only spend four days out of the eight-day trip conducting business—or just 50% of your time away—you would only be able to deduct 50% of the cost of your travel expenses, because the trip no longer qualifies as entirely for business.

List of travel expenses

Here are some examples of business travel deductions you can claim:

• Plane, train, and bus tickets between your home and your business destination
• Baggage fees
• Laundry and dry cleaning during your trip
• Rental car costs
• Hotel and Airbnb costs
• 50% of eligible business meals
• 50% of meals while traveling to and from your destination

On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

The cost of your lodging is tax deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, but it depends on how you schedule your trip. The trick is to wedge “vacation days” in between work days.

Here’s a sample itinerary to explain how this works:

Thursday: Fly to Durham, NC. Friday: Meet with clients. Saturday: Intermediate line dancing lessons. Sunday: Advanced line dancing lessons. Monday: Meet with clients. Tuesday: Fly home.

Thursday and Tuesday are travel days (remember: travel days on business trips count as work days). And Friday and Monday, you’ll be conducting business.

It wouldn’t make sense to fly home for the weekend (your non-work days), only to fly back into Durham for your business meetings on Monday morning.

So, since you’re technically staying in Durham on Saturday and Sunday, between the days when you’ll be conducting business, the total cost of your lodging on the trip is tax deductible, even if you aren’t actually doing any work on the weekend.

It’s not your fault that your client meetings are happening in Durham—the unofficial line dancing capital of America .

Meals and entertainment during your stay

Even on a business trip, you can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. So, if you’re in Louisiana closing a deal over some alligator nuggets, you can write off 50% of the bill.

Just make sure you make a note on the receipt, or in your expense-tracking app , about the nature of the meeting you conducted—who you met with, when, and what you discussed.

On the other hand, if you’re sampling the local cuisine and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.

Meals and entertainment while you travel

While you are traveling to the destination where you’re doing business, the meals you eat along the way can be deducted by 50% as business expenses.

This could be your chance to sample local delicacies and write them off on your tax return. Just make sure your tastes aren’t too extravagant. Just like any deductible business expense, the meals must remain “ordinary and necessary” for conducting business.

How Bench can help

Surprised at the kinds of expenses that are tax-deductible? Travel expenses are just one of many unexpected deductible costs that can reduce your tax bill. But with messy or incomplete financials, you can miss these tax saving expenses and end up with a bigger bill than necessary.

Enter Bench, America’s largest bookkeeping service. With a Bench subscription, your team of bookkeepers imports every transaction from your bank, credit cards, and merchant processors, accurately categorizing each and reviewing for hidden tax deductions. We provide you with complete and up-to-date bookkeeping, guaranteeing that you won’t miss a single opportunity to save.

Want to talk taxes with a professional? With a premium subscription, you get access to unlimited, on-demand consultations with our tax professionals. They can help you identify deductions, find unexpected opportunities for savings, and ensure you’re paying the smallest possible tax bill. Learn more .

Bringing friends & family on a business trip

Don’t feel like spending the vacation portion of your business trip all alone? While you can’t directly deduct the expense of bringing friends and family on business trips, some costs can be offset indirectly.

Driving to your destination

Have three or four empty seats in your car? Feel free to fill them. As long as you’re traveling for business, and renting a vehicle is a “necessary and ordinary” expense, you can still deduct your business mileage or car rental costs even when others join you for the ride.

One exception: If you incur extra mileage or “unnecessary” rental costs because you bring your family along for the ride, the expense is no longer deductible because it isn’t “necessary or ordinary.”

For example, let’s say you had to rent an extra large van to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle to travel alone, the expense of the extra large van no longer qualifies as a business deduction.

Renting a place to stay

Similar to the driving expense, you can only deduct lodging equivalent to what you would use if you were travelling alone.

However, there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct the portion of lodging costs that is equivalent to what you would pay only for yourself .

For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150. You can rent the $150 option and deduct $100 of the cost as a business expense—because $100 is how much you’d be paying if you were staying there alone.

This deduction has the potential to save you a lot of money on accommodation for your family. Just make sure you hold on to receipts and records that state the prices of different rooms, in case you need to justify the expense to the IRS

Heads up. When it comes to AirBnB, the lines get blurry. It’s easy to compare the cost of a hotel room with one bed to a hotel room with two beds. But when you’re comparing significantly different lodgings, with different owners—a pool house versus a condo, for example—it becomes hard to justify deductions. Sticking to “traditional” lodging like hotels and motels may help you avoid scrutiny during an audit. And when in doubt: ask your tax advisor.

So your trip is technically a vacation? You can still claim any business-related expenses

The moment your getaway crosses the line from “business trip” to “vacation” (e.g. you spend more days toasting your buns than closing deals) you can no longer deduct business travel expenses.

Generally, a “vacation” is:

• A trip where you don’t spend the majority of your days doing business
• A business trip you can’t back up with correct documentation

However, you can still deduct regular business-related expenses if you happen to conduct business while you’re on vacay.

For example, say you visit Portland for fun, and one of your clients also lives in that city. You have a lunch meeting with your client while you’re in town. Because the lunch is business related, you can write off 50% of the cost of the meal, the same way you would any other business meal and entertainment expense . Just make sure you keep the receipt.

Meanwhile, the other “vacation” related expenses that made it possible to meet with this client in person—plane tickets to Portland, vehicle rental so you could drive around the city—cannot be deducted; the trip is still a vacation.

If your business travel is with your own vehicle

There are two ways to deduct business travel expenses when you’re using your own vehicle.

• Actual expenses method
• Standard mileage rate method

Actual expenses is where you total up the actual cost associated with using your vehicle (gas, insurance, new tires, parking fees, parking tickets while visiting a client etc.) and multiply it by the percentage of time you used it for business. If it was 50% for business during the tax year, you’d multiply your total car costs by 50%, and that’d be the amount you deduct.

Standard mileage is where you keep track of the business miles you drove during the tax year, and then you claim the standard mileage rate .

The cost of breaking the rules

Don’t bother trying to claim a business trip unless you have the paperwork to back it up. Use an app like Expensify to track business expenditure (especially when you travel for work) and master the art of small business recordkeeping .

If you claim eligible write offs and maintain proper documentation, you should have all of the records you need to justify your deductions during a tax audit.

Speaking of which, if your business is flagged to be audited, the IRS will make it a goal to notify you by mail as soon as possible after your filing. Usually, this is within two years of the date for which you’ve filed. However, the IRS reserves the right to go as far back as six years.

Tax penalties for disallowed business expense deductions

If you’re caught claiming a deduction you don’t qualify for, which helped you pay substantially less income tax than you should have, you’ll be penalized. In this case, “substantially less” means the equivalent of a difference of 10% of what you should have paid, or $5,000—whichever amount is higher.

The penalty is typically 20% of the difference between what you should have paid and what you actually paid in income tax. This is on top of making up the difference.

Ultimately, you’re paying back 120% of what you cheated off the IRS.

If you’re slightly confused at this point, don’t stress. Here’s an example to show you how this works:

Suppose you would normally pay $30,000 income tax. But because of a deduction you claimed, you only pay $29,000 income tax.

If the IRS determines that the deduction you claimed is illegitimate, you’ll have to pay the IRS $1200. That’s $1000 to make up the difference, and $200 for the penalty.

Form 8275 can help you avoid tax penalties

If you think a tax deduction may be challenged by the IRS, there’s a way you can file it while avoiding any chance of being penalized.

File Form 8275 along with your tax return. This form gives you the chance to highlight and explain the deduction in detail.

In the event you’re audited and the deduction you’ve listed on Form 8275 turns out to be illegitimate, you’ll still have to pay the difference to make up for what you should have paid in income tax—but you’ll be saved the 20% penalty.

Unfortunately, filing Form 8275 doesn’t reduce your chances of being audited.

Where to claim travel expenses

If you’re self-employed, you’ll claim travel expenses on Schedule C , which is part of Form 1040.

When it comes to taking advantage of the tax write-offs we’ve discussed in this article—or any tax write-offs, for that matter—the support of a professional bookkeeping team and a trusted CPA is essential.

Accurate financial statements will help you understand cash flow and track deductible expenses. And beyond filing your taxes, a CPA can spot deductions you may have overlooked, and represent you during a tax audit.

Learn more about how to find, hire, and work with an accountant . And when you’re ready to outsource your bookkeeping, try Bench .

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What Are Travel Expenses?

Understanding travel expenses, the bottom line.

• Deductions & Credits
• Tax Deductions

Travel Expenses Definition and Tax Deductible Categories

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. That business can include conferences or meetings.

Key Takeaways

• Travel expenses are tax-deductible only if they were incurred to conduct business-related activities.
• Only ordinary and necessary travel expenses are deductible; expenses that are deemed unreasonable, lavish, or extravagant are not deductible.
• The IRS considers employees to be traveling if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
• Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.

The Internal Revenue Service (IRS) considers employees to be traveling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help you get reimbursed by your employer and can help your employer prepare tax returns. Examples of travel expenses can include:

• Airfare and lodging for the express purpose of conducting business away from home
• Transportation services such as taxis, buses, or trains to the airport or to and around the travel destination
• The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel
• The cost of computer rental and other communications devices while on the business trip

Travel expenses do not include regular commuting costs.

Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.

While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.

Types of Travel Expenses

Types of travel expenses can include:

• Personal vehicle expenses
• Taxi or rideshare expenses
• Airfare, train fare, or ferry fees
• Laundry and dry cleaning
• Business meals
• Business calls
• Shipment costs for work-related materials
• Some equipment rentals, such as computers or trailers

The use of a personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expense, though only for the business-use portion of the trip. For instance, if in the course of a business trip, you visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions .

The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.

Travel expenses can also include operating and maintaining a house trailer as part of the business trip.

Can I Deduct My Business Travel Expenses?

Business travel expenses can no longer be deducted by individuals.

If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.

If you work for a company and are reimbursed for the costs of your business travel , your employer will deduct those costs at tax time.

Do I Need Receipts for Travel Expenses?

Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.

What Are Reasonable Travel Expenses?

Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.

Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.

Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.

If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.

Internal Revenue Service. " Topic No. 511, Business Travel Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 13.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Page 7.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 6-7, 13-14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 4.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Pages 5, 7.

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What Expenses Can I Claim as a Company Director?

Company directors are entitled to claim certain expenses. This is the case whether you’re the sole director of a limited company, or the managing director of a small business.

In this post we’ll outline some of the expenses you can claim as a company director, along with any limits.

Please note that you should pay for all business expenses from a business bank account . Keep all of your personal expenses separate through paying for them from your personal account.

Be sure to check out our guide to allowable expenses for the self-employed , too.

Allowable Expenses For a Limited Company Director

Director salary.

Your salary as a limited company director is an allowable expense, and so too are your National Insurance contributions.

It’s up to you to decide how much your business pays you. Just make sure that the arrangement you decide on is in line with IR35 regulations. You can read our essential introduction to IR35 .

You can also claim up to 100% tax relief on any contributions you make to your pension scheme – whether it’s for you, as a director, or for your employees.

Business Premises

If you rent external office space, your business can cover the cost of the rent, your utility bill payments, and any other associated expenses.

If you work from a home office, you can either claim:

• Basic allowance – Up to £26 a month if you work at least 25 hours per month from home.
• Apportioned cost – You can claim money back from your business to spend on household bills if you work one day a week from your home office. For this, you’ll have to calculate how much of your bills can be attributed to business use – whether that’s rent, mortgage payments, and utilities. You may ultimately have to provide HMRC with evidence to support your apportioned cost claim. Read our full guide to running a business from home .

Professional Services and Business Expenses

Your business can cover the costs of numerous professional services, including:

• Accounting and bookkeeping.
• Legal costs associated with starting a business.
• Marketing and advertising.
• Website design and hosting.
• Clothing and laundry bills (provided your work requires a protective uniform).
• Telephone and broadband costs.

You can also claim tax relief on some of these services. But check with HMRC for more information about which service costs are allowable expenses.

Other Tax Deductible Expenses

Certain other expenses can be tax-deductible, including:

• Entertainment – though you can’t claim tax relief for the costs of entertaining clients, you can do so for entertaining staff. This only applies to events that you hold every year, which are open to every employee, and which do not cost any more than £150 per head.
• Postage, stationery, and office supplies.
• Employee training and development – so long as the training’s relevant to their current role.
• “Trivial benefits” for employees. Read our full guide to what counts as a trivial benefit .
• Charity donations. Find out what ty pes of donations are tax deductible for limited company directors .

When it comes to cars, there are different rules for allowable expenses depending on whether you’re driving a personal vehicle, or a company-owned vehicle.

You can sometimes claim tax relief for the fuel costs associated driving for work. However, the tax relief is usually only available if you’re travelling “on the job” rather than “to the job”. So you can claim relief if you’re travelling in the performance of your duties, but not for your standard commute.

It’s also possible to apply for tax relief if you purchase a car directly through the business – though you will have to pay tax if you drive this car for private use.

For more details of allowable expenses, limits, and exceptions, check the latest HMRC guidance here .

Other Travel Expenses

Your business can cover the costs of travelling by rail or plane to see a client and HMRC won’t consider it a taxable benefit. HMRC also doesn’t consider hotel accommodation as a taxable benefit if it’s covered by your business – but only if the hotel stay was for business purposes.

You can also apply for tax relief on parking fees and road tolls, while your business can cover the cost of food purchased during business trips.

You can get full tax relief for some forms of insurance. Examples include:

• Public liability insurance.
• Professional indemnity insurance.
• Contents insurance.
• Employer’s liability insurance.

Business insurance provides an essential safety net that will help you keep your company afloat when you’re faced with unexpected situations. Read our full guide to why you need business insurance .

We specialise in providing insurance to small businesses, start-ups and the self-employed. We tailor insurance to meet your needs and protect the specific risks you face as a limited company director.

If you have any questions or would like to discuss your options, please contact our Tapoly team at [email protected], call our helpline on +44(0)207 846 0108 or try our chat on our website. 

01865 582064   |  [email protected]   |   Book an appointment

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Travel for employees or directors

Are your, or your employees’, travel costs taxable?

Travel costs for employees and directors are always tax deductible for the company. The company includes such costs as an expense in its accounts and only pays tax on the profits which are stated after deducted all such expenses.

However, some travel costs paid for by your company may need to be included on payslips or as a taxable benefit in kind.

These notes apply to directors (including owner managers of companies) and any employees of the company – all referred to as “employees” below. References to “travel expenses” include all travel and associated subsistence and accommodation costs.

Travel expenses that are not taxable on the employee

Travel in performance of duties (ITEPA 2003, s. 337)

Travel in performance of an employee’s employment duties is not taxable. Such journeys include visiting a client’s premises on occasional irregular basis. For an example an IT engineer visiting various sites from their main workplace, as and when the need arises, would be travelling in the performance of duties.

This category does not include regular travel between home and work as this is before and after the performance of duties, rather than during the performance of duties.

Travel between workplaces (of the same employment) is not taxable on the employee or director only if attendance at both workplaces is a requirement of the work. If your company has more than one office and you are required to travel between them in order to carry out your duties then this would not be taxable.

Home is usually not counted as a workplace for this purpose. The only exception is if the nature of duties are such that they have to be carried out home (e.g. home is a bed and breakfast business, a farmhouse for the business of training dogs for the disabled in a home environment – per HMRC guidance).

Travel for necessary attendance at a temporary workplace (ITEPA 2003, s. 338)

Travel to a temporary workplace will not be treated as a taxable benefit for the employee. This is assuming that the employee is required to attend this temporary workplace to fulfil their employment duties (there must be a necessity to attend the temporary work place, not just a preference to do so).

An employee’s expenses of travelling to a customer’s place of business or to a supplier would not be taxable. The employee may travel there directly from home without first going to their normal place of work, or return directly home after the visit.

Note, travel from home or any non-workplace to a permanent workplace or permanent work area is not be covered by this rule even if home is also a workplace. Therefore travel from home to permanent workplace is taxable.

Consequence of travel expenses that are not taxable on the employee

No entries are required on payslips for the above types of travel.

As long as the company is reimbursing actual expenditure then no P11D entries are needed. If payments are made for round sums or an allowance is paid in advance then P11D will be required to show the expenses, which can also be claimed as deduction on P87 or self-assessment tax return.

Travel that is taxable on the employee

All other travel expenses paid by the company, including all travel to a permanent workplaces (except travel between workplaces), all commuting and all private travel are taxable on the employee or director and subject to national insurance.

If the employee pays for the travel and the employer reimburses this, the grossed up amount must be shown on payslips. There is full tax and NI on this amount. No P11D entry is required.

If the employee arranges the travel but the company pays the supplier directly, the amount must be shown as taxable on P11D but subject to national insurance (employees and employers) on payslips.

If the company arranges and pays for the travel then no entries needed on payslips. The amount is taxed by being recorded on P11D and Class 1A (employers only) NI is paid on P11D(b).

Temporary workplaces

Workplaces attended to perform a task of limited duration and the task does not last ( and is never considered likely to last) more than 24 months or most of the period of the employment are temporary workplaces.

An employee may work occasionally at one site for many years but the site may remain a temporary workplace because the visits are occasional. An employee may work full-time at a particular site for a period of up to two years and it can still be treated as a temporary workplace.

If an employee spends many hours per week for more than two years at a particular place, then it can no longer qualify as a temporary workplace. Also if attendance is for the most or all of the period of employment then it cannot be a temporary workplace, even if the duration is less than two years.

Permanent workplaces

Usually your main place of work will be a permanent workplace.

It is possible to have more than one permanent workplace. Permanent workplaces include but are not restricted to:

Any workplace attended to perform a task that is not of limited duration; or

Anywhere that is attended more than 40% or work time, and will be so for more than two years (or most or all of the duration of the employment); or

Any work base at which tasks are allocated; or

Any place attended regularly to perform duties of employment but is not a temporary workplace.

Subsistence

HMRC define subsistence as “the reasonable and necessary cost of a meal/snack incurred by an employee whilst undertaking allowable business travel. The travel must occupy the whole or a substantial part of the working day encompassing the normal meal breaks.”

Obviously this definition is subject to some interpretation, However you should be happy that you could explain to HMRC how the subsistence claims you have made fall within this definition. There is a risk that HMRC could try to reclassify these as staff entertainment which would be taxable of the employees.

The above is general information only. If you are in any doubt about whether you or your employees may be taxable on any of the travel expenses paid by your company, then please contact us regarding specific advice.

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The Complete Guide to Travel and Expense Management (T&E) 

Managing travel and expenses for your company can be a complex task, requiring careful attention to detail and adherence to company policies. As your business grows, so does the need for effective travel and expense management. From ensuring compliance with policy guidelines to optimizing costs, there are many factors to consider to make the process smoother for everyone involved.

In this blog post, we will explore the fundamentals of travel and expense management, offering insights into best practices that can help streamline the process. Whether you’re a small business with a handful of travelers or a large corporation with a global workforce, understanding the basics of travel and expense management is essential for maintaining control over your travel costs and ensuring compliance with your company’s policies.

What is Travel and Expense Management?

Travel and Expense Management (T&E) is the process of overseeing and controlling an organization’s spending on business-related travel and expenses. It involves documenting, processing, and monitoring the expenses to ensure they are in line with company policies and tax regulations. 

T&E management includes various tasks such as booking travel arrangements, managing expenses, and ensuring compliance with corporate policies and legal requirements. The goal of travel and expense management is to optimize spending, improve efficiency, and maintain transparency in business expenses. 

Key components of travel and expense management include:

• Approving travel requests
• Booking travel arrangements (such as flights and hotels)
• Managing corporate credit cards
• Submitting and approving expense claims
• Handling reimbursement
• Auditing expenses for compliance
• Guiding travel policies to employees

T&E management helps organizations save money, time, and resources by providing visibility into spending patterns and ensuring that employees only spend money on necessary expenses during business trips. It plays a crucial role in maintaining accurate financial records and ensuring compliance with tax regulations .

What is the Travel & Expense Policy?

A travel and expense policy is a set of guidelines and rules established by a company to regulate how employees spend company funds on business trips and related expenses. 

These policies typically cover various aspects of travel and expenses, including:

• How and where to book travel
• Criteria for approving or rejecting travel itineraries
• Expense reimbursement process
• Guidelines for flights, trains, and class accommodations
• Approved hotels and allowable incidental expenses
• Ground transportation guidelines
• Meal allowances

T&E policies are designed to ensure that employees understand the company’s expectations regarding travel and expenses and to provide clarity and consistency in how these expenses are managed and reimbursed. They help companies control costs, ensure compliance with regulations, and provide employees with clear guidelines for managing expenses while traveling for business.

Why is Travel and Expense Management Important?

Travel and expense management is essential for controlling costs, ensuring compliance, optimizing processes, and enhancing employee satisfaction. Implementing an effective travel and expense management process can lead to significant cost savings and operational efficiencies for businesses of all sizes. Let’s take a look at the importance of T&E management:

• Cost Control: Effective management of travel and expenses helps control costs by ensuring that expenditures are in line with budgets and company policies. It allows businesses to identify areas of overspending and implement measures to reduce unnecessary expenses.
• Compliance: Compliance with company policies and regulatory requirements is crucial. A proper travel and expense management process helps ensure that expenses are incurred for legitimate business purposes and comply with tax regulations , reducing the risk of audits and penalties.
• Visibility and Reporting: A centralized process provides visibility into travel and expense data, allowing businesses to track spending, analyze trends, and generate reports. This visibility helps in making informed decisions and optimizing travel budgets.
• Streamlined Processes: Managing travel and expenses manually can be time-consuming and prone to errors. An automated system streamlines processes, reducing administrative burden, and improving efficiency.
• Policy Enforcement: A robust travel and expense management system helps enforce company policies related to travel and expenses. It ensures that employees adhere to guidelines regarding travel bookings, expense submissions, and reimbursement , promoting accountability and compliance.
• Employee Satisfaction: A well-managed travel and expense process can enhance employee satisfaction by providing a smooth and timely reimbursement process. It also ensures that employees are aware of the company’s travel policies and procedures, reducing confusion and frustration.

What are the Stages of Travel and Expense Management?

Here is a breakdown of the eight different stages of travel and expense management:  

1. Developing an Expense Policy

Develop a comprehensive expense policy that covers all aspects of travel and expense management. Specify allowable expenses, limits, and procedures for requesting funds, making authorized transactions, submitting expense reports, and receiving reimbursements. Include clear guidelines for travel-related expenses to ensure consistency and compliance.

2. Streamlining Pre-Travel Processes

Use travel and expense management automation platforms to simplify the pre-travel process. These platforms enable employees to submit travel requests, which are then routed to managers for approval. Managers can quickly review and approve requests, and employees can book their travel directly through the platform, ensuring all bookings are recorded and tracked efficiently.

3. Managing Expense Incurrence

During business trips, employees will incur various expenses, such as meals, transportation, and accommodation. Companies can provide employees with cash advances, and corporate credit cards, or require them to pay out of pocket and submit expense reports for reimbursement. Clear communication and guidelines are essential to ensure employees understand the process and comply with company policies.

4. Efficient Receipt Handling

Managing receipts is a crucial aspect of expense management. Traditionally, employees would need to keep track of paper receipts and submit them along with their expense reports. However, digital solutions offer a more convenient option. Employees can use mobile apps to capture and upload receipts, which are then stored securely in the cloud. Some platforms even offer OCR capabilities, automatically extracting relevant information from receipts and eliminating manual data entry.

5. Standardizing Expense Reporting

Standardize the expense reporting process to ensure consistency and accuracy. Provide employees with easy-to-use tools, such as mobile apps or web-based forms, to submit their expense reports. Include prompts for required information, such as date, amount, and purpose of the expense, to streamline the reporting process and minimize errors.

6. Implementing an Approval Process

Implement a clear and efficient approval process for expense claims. Use expense management software to automate the workflow, allowing managers to review and approve claims quickly. Ensure that all claims are reviewed for compliance with company policies before approval to prevent unauthorized expenses.

7. Ensuring Prompt Reimbursement

Prompt reimbursement of expenses is essential to maintain employee satisfaction. Once expense claims are approved, ensure that reimbursements are processed promptly. Consider using direct deposit or other electronic payment methods to expedite the reimbursement process and reduce administrative burden.

8. Conducting Compliance Audits

Regularly audit expense reports to ensure compliance with company policies and regulations. Look for any anomalies or discrepancies that may indicate fraudulent activity. Conducting regular audits helps maintain the integrity of the expense management process and identifies areas for improvement.

What are the Challenges of Travel and Expense Management?

Managing travel and expenses poses several challenges for organizations, ranging from tracking and controlling costs to ensuring policy compliance. These challenges can impact financial health, employee satisfaction, and operational efficiency. Understanding these challenges is crucial for implementing effective solutions. Here are some common challenges of travel and expense management:

1. Trouble with Policy Compliance

A common challenge in managing travel and expenses is the lack of enforcement of policies. This often occurs due to unclear policies. When policies are ambiguous, employees may spend without regard to guidelines, leading to uncontrolled expenses and budget strain.

As businesses grow, ensuring compliance becomes more challenging. Unauthorized bookings and other policy breaches can occur due to various reasons, such as lack of awareness or attempts at internal fraud.

2. Lack of Data Management

Even with enforced expense reporting within your travel and expense management policy, there’s always a risk of misplacing receipts and losing travel documents. Ensuring comprehensive tracking of every expense can be challenging, especially when employees have to hold onto receipts until they return home to submit them.

3. Limited Visibility into Spends

One of the significant challenges in travel expense management is the lack of visibility into spending. This often occurs due to ineffective tracking of employee expenditures. Without clear visibility, it becomes challenging to control costs effectively. 

While some savings might be possible, a comprehensive understanding of spending or potential savings opportunities remains unclear. Delayed submission of expense reports further complicates the situation, as neither managers nor travelers can accurately assess whether expenses align with budgetary constraints.

4. Unclear Expense Policies

Corporate travel and expense management involve many considerations, making it easy to overlook aspects when creating your expense policy. This can create confusion and ambiguity, leading to a lack of clarity for employees.

5. Complicated Expense Workflows

Managing business travel expenses often involves navigating complex workflows. Obtaining approvals from multiple stakeholders can be time-consuming, especially when quick payments are needed. Additionally, the process of filing expense reports after a trip can involve many complex steps.

6. Labor-Intensive Manual Processes and Paperwork

Many businesses use manual processes, such as spreadsheets, to track their expenses. While this may seem efficient initially, it becomes difficult to manage as the business grows. Manually inputting data into spreadsheets is time-consuming and prone to errors.

Without automation, your team will spend a lot of time on manual data entry and paperwork. It includes collecting and storing receipts, as well as entering each transaction from business trips into spreadsheets. These tasks can decrease productivity and lead to inefficiencies.

7. Expense Fraud

Expense fraud can pose a significant threat to your company’s finances, as employees may misuse company funds by submitting false expenses or using them for personal trips. To prevent such fraud, organizations must implement measures to detect and prevent fraudulent activities.

Expense fraud can take various forms, including internal fraud where employees intentionally make unauthorized transactions, or external fraud where criminals steal company funds. Not enforcing travel and expense policies or carefully controlling spending can lead to multiple fraud attempts, some of which may go unnoticed.

8. Difficulty Managing Multi-Currency Expenses

Business travel can involve transactions in different currencies, which can be complex. Managing expenses in foreign currencies requires decisions on when to convert rates, such as at the time of purchase or reimbursement.

9. Challenges with Filing Expense Reports

Filing expense reports manually can be time-consuming and tedious. Employees often find it challenging to keep track of receipts and complete the paperwork accurately and promptly. This manual process can lead to delays in reimbursement and create a frustrating experience for employees.

10. Dealing with Reimbursements

Managing reimbursements for employee travel expenses can be challenging. Without an efficient system in place, employees may experience delays in receiving their reimbursement checks, leading to frustration and dissatisfaction. Delayed reimbursements can also impact employee morale and may create financial burdens for employees who rely on timely reimbursements.

Best Practices for Travel and Expense Management

Effective travel and expense management is crucial for organizations to control costs, ensure policy compliance, and streamline processes. Here are some best practices to improve your travel and expense management:

1. Enhance Spend Visibility

Utilizing automated travel expense software and mobile tracking apps allows companies to gain real-time insights into their spending. These tools provide detailed reports on expenses, highlighting areas where costs can be optimized. By having a 360-degree view of expenses, businesses can make informed decisions, identify trends, and ensure compliance with policies. Additionally, these tools can help detect any unauthorized or non-compliant spending, allowing for prompt action to be taken. Overall, enhanced spending visibility leads to better financial management and cost control.

2. Prioritize Employee Experience

Improving the travel experience for employees can lead to higher compliance with travel policies. Offering self-booking tools and user-friendly interfaces can make the travel booking process more efficient and enjoyable for employees. This can result in higher employee satisfaction and increased productivity. By prioritizing employee experience, companies can create a positive work environment and improve overall employee morale.

3. Offer Convenient Payment Options

Providing corporate credit cards to employees for business expenses can streamline the payment process and eliminate the need for employees to use personal funds. It can reduce the administrative burden associated with expense reimbursement and ensure that employees are not out of pocket for business expenses. Alternatively, engaging a travel management company can simplify the payment process by consolidating all travel expenses into a single invoice, making it easier to track and manage expenses.

4. Embrace Paperless Processes 

Digitizing expense filing and reimbursement procedures can significantly reduce the time and effort required to process expenses. By eliminating paperwork, companies can streamline their expense management processes, reduce the risk of errors, and improve efficiency. Additionally, digital processes can provide greater transparency and visibility into expenses, making it easier for companies to track and monitor spending. Overall, embracing paperless processes can lead to cost savings and improved productivity.

5. Optimize Approval Workflows

Designing workflows that facilitate quick approval for essential expenses can expedite the expense approval process. By setting up auto-approval for certain spending categories, companies can reduce the time and effort required to process expenses. This can lead to faster reimbursement for employees and improved cash flow for the company. Additionally, optimizing approval workflows can help prevent delays and bottlenecks in the approval process, ensuring that expenses are approved on time.

6. Utilize Travel Expense Policy Templates

Using pre-designed policy templates simplifies the creation of travel expense policies. These templates are often customizable, allowing companies to tailor them to their specific needs and requirements. By using templates, companies can save time and effort in developing policies from scratch. Additionally, templates ensure that policies are comprehensive and cover all necessary aspects of travel expenses. This helps to reduce the risk of misunderstandings and ensures that employees are aware of and comply with the company’s policies.

7. Implement a Paperless Policy

Integrating the travel and expense policy into digital tools makes it easily accessible to employees. This eliminates the need for physical documents, reducing paper waste and simplifying document management. A paperless policy also allows for real-time updates and changes to the policy, ensuring that employees always have access to the most up-to-date information. Additionally, a digital policy can be easily distributed to employees, ensuring that everyone is aware of and understands the policy.

8. Regularly Update Your Policy

Keeping the travel and expense policy current reflects changes in business needs and employee behaviors. Regular updates ensure that the policy remains relevant and effective in managing expenses. This helps prevent misunderstandings and ensures that employees are aware of any changes to the policy. Regular updates also demonstrate a commitment to compliance and best practices in travel and expense management.

Closing Thoughts

Implementing best practices for travel and expense management is essential for organizations to achieve greater efficiency, compliance, and cost control. By enhancing spend visibility, prioritizing employee experience, offering convenient payment options, embracing paperless processes, and optimizing approval workflows, businesses can streamline their travel and expense processes and drive better outcomes.

At Peakflo, we understand the importance of effective travel and expense management. Our Travel and Expense solution is designed to simplify and streamline the entire process. With Peakflo’s intuitive software, organizations can automate expense tracking, simplify reimbursement processes, and gain real-time insights into spending patterns. By leveraging our solution, businesses can optimize their travel and expense management, reduce administrative burden, and ensure compliance with policies, ultimately driving greater efficiency and cost savings.

Mastering Corporate Travel Policy: Best Practices for Creation and Implementation

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• Business tax

Expenses and benefits for directors and employees - a tax guide: 480

This guidance sets out HMRC's approach to applying legislation on expenses payments and benefits received by directors and employees.

This tax guide explains the tax law relating to expenses payments and benefits received by:

It also explains the tax law relating to the valuation of non-cash benefits received by any taxpayer:

• in connection with termination of employment
• from an employer-financed retirement benefits scheme

For information on these non-cash benefits, read chapter 27 before you look at any other section of the tax guide.

This tax guide is based on the law in force at 6 April 2017 and certain subsequent changes that come into force from 6 April 2018. It has no binding force and does not affect your rights of appeal.

Certain specific aspects of the law affecting securities or share schemes apply from dates later than 6 April 2007. See the website address in chapter 23.10 for more details.

This tax guide also describes the scope of the legislation and the effect of the changes resulting from the Finance Act 1976 and subsequent Finance Acts. Most of the relevant provisions are now in part 3 chapters 2 to 11 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

Unless otherwise stated the statutory references in this tax guide are to ITEPA 2003.

References to the relevant legislation are shown at the top of each paragraph. If you’re in doubt, consult the wording of the statute on the legislation website .

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Expenses Guide for Limited Companies and Directors: Everything You Need to Know

If you are a director of a limited company, it is important to understand what expenses you can claim back to reduce your tax bill. Knowing what can be claimed and what cannot be claimed can make a significant difference in the amount of tax that you have to pay.

Expenses can be claimed by limited company directors for goods or services that are wholly and exclusively for business purposes. This includes expenses such as travel, accommodation, and equipment. However, it is important to keep accurate records and receipts to support these claims. Failure to do so can result in penalties from HMRC.

Navigating the expenses system can be complicated, but with the help of an expenses guide for limited companies and directors, you can ensure that you are making the most of your expenses claims while staying compliant with HMRC regulations. In this article, we will provide a comprehensive guide to expenses for limited company directors, including what expenses can be claimed, how to claim them, and what records you need to keep.

Understanding Limited Company Expenses

As a director, grasping the nuances of limited company expenses versus sole trader expenses is pivotal. This knowledge not only aids in effective tax planning but also in strategic financial management, such as the benefits of paying corporation tax early , which can optimise your financial planning.

Definition of Allowable Expenses

Allowable expenses are expenses that you can claim back against your company’s profits to reduce the amount of corporation tax you pay. These expenses must be incurred “wholly and exclusively” for the purpose of your business. Examples of allowable expenses include:

• Travel expenses, such as fuel, parking, and public transport costs.
• Office expenses, such as rent, utilities, and stationery.
• Staff costs, such as salaries, bonuses, and pension contributions.
• Business insurance, such as public liability and professional indemnity insurance.
• Advertising and marketing costs, such as website design and social media advertising.
• Training and development costs, such as courses and conferences.

It’s important to keep accurate records of your expenses, including receipts and invoices, to support your claims.

Differences Between Sole Trader and Limited Company Expenses

The main difference between sole trader and limited company expenses is that as a sole trader, you can claim back any expenses that are “wholly and exclusively” for the purpose of your business, including personal expenses that are used for business purposes. However, as a director of a limited company, you can only claim back expenses that are incurred by the company for business purposes .

For example, if you’re a sole trader and you use your personal car for business purposes, you can claim back the full cost of fuel, insurance, and maintenance. However, if you’re a director of a limited company and you use your personal car for business purposes, you can only claim back the cost of fuel and other expenses that are directly related to the business use of the car.

Another difference is that as a sole trader, you can claim back expenses using the cash basis accounting method, which means you can claim back expenses when you pay for them, rather than when you incur them. However, as a director of a limited company, you must use the accruals basis accounting method, which means you can only claim back expenses when they are incurred, rather than when you pay for them.

Taxable and Non-Taxable Expenses

Distinguishing between taxable and non-taxable expenses is vital for effective financial management and ensuring you’re not overpaying on taxes. For the latest fiscal updates that impact your planning, including tax rates and allowances for 2023-24, see our guide on tax rates and allowances .

Corporation Tax and Expenses

When you are running a limited company, you are required to pay corporation tax on your profits. However, you can deduct certain expenses from your profits before calculating your tax liability. These expenses are known as allowable business expenses, and they include costs that are incurred wholly and exclusively for the purposes of your business.

Allowable business expenses can include expenses such as rent, utilities, office equipment, and travel expenses. You can claim tax relief on these expenses, which means that you can reduce your tax liability by the amount of the expenses you have claimed. However, it is important to remember that you can only claim tax relief on expenses that are wholly and exclusively for the purposes of your business.

Tax Relief on Business Expenses

When you incur expenses that are wholly and exclusively for the purposes of your business, you can claim tax relief on these expenses. This means that you can deduct the cost of the expenses from your profits before calculating your tax liability. However, not all expenses are eligible for tax relief.

Some expenses are considered to be non-taxable, which means that you cannot claim tax relief on them. Non-taxable expenses include expenses that are not incurred wholly and exclusively for the purposes of your business, such as personal expenses. It is important to keep accurate records of your expenses and to ensure that you are only claiming tax relief on allowable business expenses.

Common Allowable Business Expenses

Within your business operations, understanding what constitutes an allowable business expense is key. For instance, when it comes to travel, knowing who can claim business mileage and the method to calculate it accurately is essential for efficient expense management.

Office Costs

Office costs are expenses that are incurred in the day-to-day running of your business. These can include:

• Rent and rates for business premises
• Utility bills (gas, electricity, water)
• Office equipment (computers, printers, furniture)
• Stationery and postage costs
• Internet and phone bills

Travel and Subsistence Costs

Travel and subsistence costs are expenses that are incurred when you or your employees travel for business purposes. These can include:

• Fuel costs (if you use your own vehicle for business purposes)
• Train, bus, and taxi fares
• Hotel rooms and meals (if you need to stay overnight for business purposes)
• Parking fees and tolls

Clothing Expenses

Clothing expenses are expenses that are incurred when you or your employees need to purchase clothing for business purposes. These can include:

• Protective clothing (such as safety boots and hard hats)
• Uniforms (if they are necessary for your business)
• Costumes (if you are in the entertainment industry)

Staff Costs

Staff costs are expenses that are incurred when you employ staff. These can include:

• Salaries and wages
• National Insurance contributions

Financial Costs

Financial costs are expenses that are incurred when you borrow money for your business. These can include:

• Bank charges
• Interest on loans
• Overdraft fees

Costs of Goods

Costs of goods are expenses that are incurred when you purchase goods for resale. These can include:

• Raw materials
• Marketing and advertising costs

Remember, these are just some of the most common allowable business expenses for limited companies. For a more comprehensive list, please refer to the HMRC website .

Specific Expenses and Benefits

As a director of a limited company, you are entitled to claim back certain expenses. In this section, we will cover some of the most common expenses and benefits that you may be able to claim back.

Entertainment and Gifts

If you provide entertainment or gifts to your employees, you can claim back the cost of these as a business expense. However, there are some restrictions on what you can claim. For example, you can only claim back the cost of entertaining clients or suppliers if it is directly related to your business. You can also claim back the cost of gifts up to a value of £50 per employee per year, as long as the gift is not cash or a voucher that can be exchanged for cash.

Health, Medical, and Welfare Expenses

If you pay for private medical insurance for yourself or your employees, you can claim back the cost of this as a business expense. You can also claim back the cost of any health, medical, or welfare expenses that you incur as a result of your work, such as physiotherapy or counselling.

Insurance and Protection

As a director of a limited company, you are responsible for ensuring that your business is adequately protected. This means that you may need to take out various types of insurance, such as business insurance, professional indemnity insurance, and public liability insurance. The good news is that you can claim back the cost of these as a business expense.

When taking out insurance, it’s important to make sure that you are getting the right level of cover for your business. You should also shop around to make sure that you are getting the best deal.

Working from Home

For directors and employees adapting to remote work, identifying which expenses qualify for claims can significantly enhance financial efficiency . Our guide on what you can and can’t claim when working from home is an invaluable resource for navigating these claims.

Home Office Expenses

If you use a room in your home as an office, you may be able to claim expenses for it. This can include rent, council tax, utilities, and insurance. However, you can only claim expenses for the proportion of the room that you use for work. For example, if you use one room in a five-room house for work, you can claim 20% of the expenses.

To claim home office expenses, you must keep a record of how much you use the room for work. You can do this by keeping a log of the hours you spend working in the room. You can also claim a flat rate of £6 per week or £26 per month without having to provide any evidence of the expenses you have incurred. This is known as the “use of home” allowance.

Use of Home as Office

If you only work at home occasionally, you can claim expenses for the general costs you may incur. This can include heating, lighting, and metered water. Your company can pay you a nominal amount of £6 per week or £26 per month to cover these costs. This payment is tax-free and does not need to be reported to HMRC.

However, if you work from home regularly, you may be able to claim more substantial expenses. For example, if you use your home broadband for work purposes, you can claim a proportion of the cost. You can also claim for business mileage if you use your car for work-related journeys.

It is essential to keep accurate records of all your working from home expenses. This will help you to claim the correct amount of expenses and avoid any issues with HMRC. You can use a spreadsheet or accounting software to keep track of your expenses. Make sure you keep receipts for all your expenses, as you may need to provide evidence to HMRC if they ask for it.

Vehicle and Travel Expenses

Claiming expenses for company cars and fuel involves navigating the complex area of taxation . For comprehensive insights into maximising benefits while understanding the taxation of company cars , our detailed guide can assist.

Company Cars and Fuel

If your limited company owns a car, you can claim tax relief on the cost of running and maintaining the vehicle. This includes fuel costs, insurance, and repairs. However, if you use the car for personal purposes as well, you will need to pay tax on the benefit you receive.

If you use your own car for business purposes, you can claim tax relief on the mileage you cover. The current mileage rate is 45p per mile for the first 10,000 miles and 25p per mile thereafter. This covers the cost of fuel, insurance, and maintenance.

Parking and Tolls

If you need to park your car or pay tolls while travelling for business purposes, you can claim tax relief on these expenses. This includes parking fees at airports, train stations, and hotels, as well as any road tolls you need to pay.

Accommodation While Travelling

If you need to stay overnight while travelling for business purposes, you can claim tax relief on the cost of accommodation. This includes hotels, bed and breakfasts, and other types of lodging.

Make sure to keep accurate records of all your vehicle and travel expenses, including receipts and invoices. This will make it easier to claim tax relief and avoid any issues with HMRC.

Employee Expenses and Benefits

As an employer of a limited company, you are allowed to claim employee expenses as a tax-deductible expense, provided that they are incurred wholly and exclusively for business purposes . This includes expenses such as travel, subsistence, and accommodation costs that your employees incur while carrying out their duties.

Pension Contributions

You can also make pension contributions on behalf of your employees, which is a tax-efficient way to provide long-term benefits to your staff. You can claim tax relief on these contributions, and your employees can receive tax relief as well.

Childcare and Staff Welfare

If you provide childcare vouchers or directly pay for childcare for your employees, you can claim tax relief on these expenses. You can also provide staff welfare benefits, such as an annual staff party, as long as the cost per employee is less than £150 per year. These benefits are tax-deductible and are not subject to National Insurance contributions.

Remember to keep accurate records of all expenses and benefits provided to your employees. This includes details of the expense or benefit, the date it was provided, and the amount.

In addition to these benefits, you must also ensure that you are paying your employees a fair salary that reflects their skills and experience. This can help you attract and retain talented staff and ensure that your business is operating efficiently.

Recording and Reporting Expenses

When managing your expenses as a limited company director, you need to keep accurate records and report them properly to HMRC. This will help you avoid any issues with tax compliance and ensure that you are claiming all the expenses that you are entitled to.

Keeping Accurate Records

Keeping accurate records of your expenses is crucial for several reasons. Firstly, it will help you to claim back all the expenses that you are entitled to, which will reduce your tax bill. Secondly, it will help you to identify any areas where you could be saving money, such as by reducing your travel expenses or cutting back on unnecessary subscriptions.

To keep accurate records of your expenses, you should:

• Keep all receipts and invoices for expenses related to your business.
• Use accounting software to record all your expenses and categorise them correctly.
• Keep a log of all your business-related travel, including the date, time, location, purpose, and cost of each journey.
• Keep a record of all your subscriptions and other ongoing expenses.

By keeping accurate records of your expenses, you will have a clear picture of your business finances and be able to make informed decisions about how to manage your expenses.

Reporting to HMRC

When reporting your expenses to HMRC, there are several things you need to keep in mind. Firstly, you need to make sure that you are claiming only expenses that are allowable for tax purposes. Secondly, you need to report your expenses accurately and in a timely manner.

To report your expenses to HMRC, you should:

• Submit your expenses report to your accountant or use accounting software to generate a report.
• Make sure that all your expenses are categorised correctly and that you are claiming only expenses that are allowable for tax purposes.
• Keep a copy of your expenses report for your own records.
• Submit your expenses report to HMRC along with your tax return.

By reporting your expenses accurately and in a timely manner, you will avoid any issues with tax compliance and ensure that you are claiming all the expenses that you are entitled to.

Avoiding Common Mistakes

As a limited company director, it is important to avoid common mistakes when claiming expenses. The following subsections will discuss some of these mistakes and how to avoid them.

Personal vs Business Expenses

One common mistake is claiming personal expenses as business expenses. It is important to distinguish between the two and only claim expenses that are wholly and exclusively for business purposes. For example, if you use your car for both personal and business purposes, you can only claim the portion of the expenses that relate to business use. Keeping accurate records of your expenses can help you avoid this mistake.

Accidental Non-Compliance

Another common mistake is accidental non-compliance with tax law. This can happen when you are not aware of the rules and regulations surrounding expenses. For example, if you claim expenses that are not allowed under tax law, you could face penalties and fines. It is important to stay up-to-date with the latest tax laws and regulations to avoid this mistake.

To avoid accidental non-compliance, you should also ensure that your expenses are properly valued. Overvaluing expenses can lead to overclaiming and underpaying tax, which can also result in penalties and fines. Keeping accurate records and seeking professional advice can help you avoid this mistake.

Professional Advice and Support

As a limited company director, it’s important to ensure that your expenses are compliant with tax law. Seeking professional advice and support can help you navigate the complexities of the tax system and ensure that you claim the correct expenses.

When to Consult a Professional

If you’re unsure about which expenses you can claim, or if you’re concerned about the accuracy of your expense records, it may be time to consult a professional. An accountant can provide expert advice on the expenses that are allowable and help you to keep accurate records.

If you’re facing a tax investigation, it’s essential to seek professional advice. A tax investigation can be a stressful and time-consuming process, and a professional can help to ensure that you comply with the investigation and minimise any penalties.

Choosing the Right Accountant

When choosing an accountant, it’s important to consider their qualifications, experience, and professional subscriptions. A qualified accountant will have undergone professional development and will be up-to-date with the latest tax law and regulations.

Look for an accountant who is a member of a professional body, such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA). Membership of a professional body demonstrates a commitment to high standards of professionalism and ethical conduct.

Concluding Thoughts

For businesses seeking tailored accounting services, exploring our specialised accountancy services can significantly enhance compliance and financial optimisation. Whether you’re a sole trader , part of a small business , or operating a limited company , our dedicated support ensures your business structure is handled with expertise and precision.

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IRS Tax Tip 2022-104, July 11, 2022

Business travel can be costly. Hotel bills, airfare or train tickets, cab fare, public transportation – it can all add up fast. The good news is business travelers may be able to off-set some of those costs by claiming business travel deductions when they file their taxes.

Here are some details about these valuable deductions that all business travelers should know.

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. The travel period must be substantially longer than an ordinary day's work and a need for sleep or rest to meet the demands the work while away.

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business and there are special rules for conventions held outside North America .

Deductible travel expenses while away from home include the costs of:

• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station to a hotel, from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business which can include an increase in mileage rates .
• Lodging and non-entertainment-related meals .
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.

Self-employed or farmers with travel deductions

• Those who are self-employed can deduct travel expenses on  Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
• Farmers can use  Schedule F (Form 1040), Profit or Loss From Farming .

Travel deductions for the National Guard or military reserves

National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty .

Recordkeeping

Well-organized records make it easier to prepare a tax return. Keep records, such as receipts, canceled checks, and other documents that support a deduction.

More information:

• Publication 463, Travel, Gift, and Car Expenses
• IRS updates per diem guidance for business travelers and their employers

Subscribe to IRS Tax Tips

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What are the Allowable Limited Company Expenses?

Understanding what you can or can't claim as limited company expenses is tricky-and here's where our article comes in to guide you along.

Introduction

As a limited company director, you want to run your business in the most tax-efficient way possible.

One way to achieve this is to correctly claim for allowable business expenses so that you don't have to pay more tax than you are legally obliged to.

It can be tricky figuring out what you can or cannot claim, and this is where our guide comes into play.

We'll run through the different expenses you can claim, but remember that this isn't a definitive guide. Check out our resource hub on limited company tax topics for more information, or consult our specialist accountants at GoForma if you need personalised advice.

In the world of UK businesses, understanding allowable limited company expenses is crucial for financial success. In this article, we will explore what these expenses mean and why they are important for businesses operating in the UK. By gaining a clear understanding of allowable expenses, you can optimize your financial management and maximize tax efficiency. Understanding what you can or can't claim as limited company expenses is tricky, let's deep dive into the complete limited company expenses guide.

What are Allowable Business Expenses?

Understanding allowable limited company expenses.

Allowable limited company expenses refer to the legitimate costs that businesses can deduct from their taxable income, ultimately reducing their tax liability.

Allowable business expenses are essential costs that aren't taxable. These expenses are considered essential and are spent solely for business-related purposes. Knowing which expenses qualify as allowable is essential to ensure compliance with HMRC regulations and make the most of available tax reliefs.

These expenses can be deducted from your income, reducing the tax you need to pay. For example, if your revenue is £35,000 and your allowable expenses total £5,000, you'll be taxed on £30,000.

Importance of Limited Company Allowable Expenses HMRC

Understanding allowable expenses is very important for businesses in UK for below reasons.

• It helps minimize tax burdens, allowing businesses to retain more of their hard-earned profits.
• Being knowledgeable about allowable expenses enables businesses to make informed financial decisions and allocate resources effectively.
• It ensures compliance with tax laws and regulations, avoiding potential penalties and legal issues.

What Expenses can I Claim as a Limited Company Director?

We'll run through the different expenses you can claim, but remember that this isn't a definitive guide. Check out our for more information, or consult our specialist accountants at GoForma if you need personalised advice.

What are the Advantages of Using Limited Company Expenses?

Using limited company expenses offers several advantages for businesses. Here are some key benefits:

• Tax Deductions: By claiming allowable business expenses, a limited company can reduce its taxable profit, resulting in lower tax liabilities. This can help maximize the company's retained earnings and provide more funds for business growth and investment.
• Business Efficiency: Properly managing and claiming expenses can improve overall business efficiency. It allows you to track and control costs, identify areas for potential savings, and make informed financial decisions based on accurate expense data.
• Professional Image: Claiming legitimate business expenses can help project a professional image to clients, customers, and stakeholders. It demonstrates that the company operates in a responsible and transparent manner, which can enhance trust and credibility.
• Compliance with Tax Regulations: By correctly identifying and claiming allowable expenses, a limited company ensures compliance with tax regulations. This helps avoid penalties, fines, and potential audits from tax authorities.
• Financial Planning and Forecasting: Tracking and analyzing expenses provides valuable financial data for budgeting, forecasting, and business planning. It allows you to assess profitability, cash flow, and make informed decisions to drive the company's growth.

What are the Allowable Employee Expenses?

Allowable Employee Expenses List:

Employee or staffing expenses refer to the costs related to employing and supporting the workforce within the business. Some examples of allowable staffing expenses include:

• Salary - The salary and National Insurance contributions (NIC) you receive as an employee of your company can be claimed as allowable expenses. If your salary exceeds the NIC threshold, you must pay NICs
• Christmas party and annual event expenses - You can claim the costs of hosting an annual staff party as long as the following conditions apply: - Your cost per person shouldn't exceed £150 (including VAT ). Your employees may invite a partner; if they do, your total budget for an employee and an additional guest will be £300. - The main purpose of the event is to entertain your staff members. As such, most of the event attendees should be your employees.  Note that the per-person budget of £150 applies annually, so you can claim for several staff events as long as the costs fall within the budget. See EIM21690 for more information. ‍
• Lunch Expenses - When your employees are performing their work duties, it's common for them to encounter personal expenses, such as purchasing lunch while on assignments or incurring travel costs to meet clients. As an employer, you have the option to reimburse these expenses to your employees through the payroll system. This means that you can compensate them for the money they spent on these work-related expenses, ensuring that they are not financially burdened by these costs. ‍
• Gifts and trivial benefits - You're not required to pay tax and National Insurance contributions, nor notify HMRC about gifts or benefits for an employee if it meets the following conditions: - It costs £50 or less to provide - It isn't a cash or cash voucher - It's not a reward for their performance - It's not included in terms of their contract - The total does not exceed £300 in the financial year.... You must pay tax on gifts and benefits that don't meet the above conditions. ‍
• Healthcare expenses - If you provide private medical insurance for an employee, this is considered a benefit in kind . You must pay National Insurance contributions at 15.05% (2022/23 tax year), and your employee will pay personal tax.  From 6 April 2023, employers are liable to pay an additional 1.25% as a separate health and social care levy. The new social care levy will apply to employee deductions, including earnings of employees above the state pension age. However, existing reliefs will continue to apply to apprentices under 25 and employees under 21 earning less than £50,270 annually. Not that even though the rate of national insurance is set to increase for the 2022-2023 tax year, the threshold at which national insurance starts to be paid will also increase. This will reduce the overall national insurance bill or offset some of the additional contributions that must be made. The following health benefits are exempt , so you're not required to report to HMRC, or pay tax and National Insurance on the following: - Medical check-up or health screening (one check-up per year is exempt) - Medical insurance or treatment for an employee working overseas ‍
• Childcare costs - As of 4 October 2018, the Childcare Voucher scheme has been phased out by the government, so new applicants are no longer accepted. If you've set up for this scheme, you can go on receiving and using the vouchers as long as the scheme continues to run. Parents can now apply to the Tax-Free Childcare scheme. This initiative was rolled out in 2017 and was designed to replace employer-supported childcare gradually. Under the scheme, the government will contribute 20p for every 80p you pay, up to a threshold of £2,000. This means you'll receive £2,000 per year for each child, for childcare costs of up to £10,000. Further information is available on the Gov.uk website . ‍
• Pension contributions - After you've set up an agreement with a pension provider, you can contribute to your pension and get 100% tax relief as an allowable expense. Your contributions are tax-free as long as the amount falls under the annual allowance. The annual allowance is rising to £60,000 on 6 April 2023. It is £40,000 for the 2022/23 tax year and £60,000 for 2023/24 and beyond. The allowance covers all your private pensions, including your personal and workplace pensions. Bear in mind that pension decisions are often complicated and require careful consideration. We recommend speaking with a financial advisor for personalised advice before you make any contributions.

Business Entertainment Expenses Limited Company

You can claim for the costs of entertaining or potential clients. However, these aren't allowable deductions for Corporation Tax purposes.

Download our free Limited Company Expenses Guide

Our limited company expenses guide talks through all the different expense categories you can claim for along with key examples and how this can impact your corporation tax.

• Allowable business expenses
• Employee expenses
• Travel expenses
• Office & equipment expenses
• Professional services expenses
• General expenses

Thanks for downloading our free guide! We've sent you an email with your guide. You can also schedule time with an accountant below or create an instant online quote.

What Expenses can I Claim for Business Travel?

Limited Company Travel Expenses

Limited company mileage allowance.

As a limited company director, you can claim back mileage from HMRC if you use your vehicle for business trips and have paid for the fuel costs. HMRC defines these trips as journeys you make 'wholly and exclusively' for business purposes. These include:

• Trips taken to complete work (i.e. deliveries)
• Trips between two workplaces for the same job
• Going from an employee's home to a client
• Going to a temporary workplace

You can claim the following rates:

‍ Note: You can only claim the cost of fuel if your company owns the car.

Business Travel Expenses

You can claim travel-related expenses if the trip is made wholly and exclusively for business purposes and isn't considered 'ordinary commuting'. According to HMRC, a commute is defined as a trip that you make between your home and a permanent workplace. You can claim the following:

• Costs associated with running a car or vehicle, such as fuel expenses, parking fees, tolls, vehicle insurance and vehicle repairs and servicing
• Transport fares for flights, as well as rides taken via train, bus, taxi and ferries
• Meals and accommodation for overnight business trips

Office-related Expenses You Can Claim

Use of Home as Office Limited Company

1. claiming a flat rate.

If you use your home office, you can claim a rate of £6 per week as allowable business expenses.

HMRC doesn't require you to keep a receipt for this. Additionally, this isn't considered a benefit in kind, so you don't have to pay tax on the amount.

2. Apportionment of Home Bills

Alternatively, you can claim a proportion of household costs used by the business. The allowable expenses you can claim will vary depending on the situation. You can typically claim for utilities and other household expenses (but only for mortgage and council tax if you are self-employed).

This method requires you to work out the rooms you use for your business, the amount of time you use these rooms for business activities and the proportion of your utilities that you can allocate to business use.

For example, you may dedicate your study room for business purposes for half a day during the weekdays and require lighting and heating for all your hours spent on business activities.

A rental agreement must be established between you (the homeowner) and your limited company to claim proportional costs. The rules can be complicated, so we recommend consulting an accountant before you set up a rental agreement.

General Office Expenses

You can claim for basic office expenses, such as postage, stationery, printing costs, accountancy and other consumable office supplies.

Stationery and Equipment Expenses

Computers, printers and software are examples of equipment you can claim as business expenses.

You can also claim office furnishings like tables and chairs as long as they are primarily used for business purposes.

Plant and Machinery

From 1 April 2021 until 31 March 2023, a 130 per cent super-deduction applied. Companies purchasing qualifying plant and machinery assets could have claimed a 130% super-deduction capital allowance and a 50% first-year allowance for qualifying special rate assets.

These reliefs only applied to businesses subject to corporation tax, so they weren't available for sole traders, partnerships or limited liability partnerships. They applied only to purchasing new plants and machinery (including computing equipment), not second-hand assets.

Under the Annual Investment Allowance (AIA) , businesses could have claimed tax relief on 100 percent of plant and machinery investments up to the threshold (currently £1 million).

Further information is available on HMRC's factsheet .

Communications: Mobile Phone, Landline and Broadband Expenses

1. mobile phone expenses.

If your mobile phone contract is between your company and the provider and is used solely for business purposes, you can claim the entire bill as an allowable expense.

You can claim the costs incurred for business calls if you have a personal contract. You're also able to reclaim the VAT element of the business calls.

Further information is available in our guide to claiming mobile phone expenses when self-employed .

2. Landline Expenses

If your landline contract is solely for business use, you can claim the cost as an allowable expense. You can also claim for business calls you've made using your home phone line.

3. Broadband Expenses

If your residential broadband contract is in your company's name, you can claim a full deduction for the expense provided that personal use of the broadband connection is 'insignificant' .  

If the connection is used for business and personal purposes, you'll need to pay a benefit-in-kind charge on the amount paid for by the company.

If you have a personal broadband plan, you can claim the costs of using the broadband connection for business activities. You'll need to show your business and personal usage separately, such as providing a copy of an itemised bill.

Professional Services Expenses You can Claim

Business Insurance

You can claim insurance policy costs if you prove the policy is strictly taken up for business purposes.

Common types of include professional indemnity, public liability, employer's liability and business contents.

Company Formation Costs

The costs you incur to register your company can be claimed as allowable expenses. These costs can range from fees for professional services to printing costs, equipment purchases and software expenses.

Financial and Legal Expenses

1. professional fees expense.

The costs incurred for engaging professional services - such as hiring an accountant, lawyer or architect - can be claimed as an allowable expense if these services are carried out solely for business purposes.

2. Bank, Credit Card and Other Financial Costs

Bank charges, including credit card fees and loan interest, can be claimed as business expenses.

3. Bad Debts like Unpaid Invoice

Company expenses related to bad debt, such as unpaid invoices, occur when a business is unable to collect payment from a customer or client. It is considered an expense because the expected revenue from the sale or service has not been received, resulting in a financial loss for the company.

To claim bad debts as a business expense, the value of the transaction needs to be included in your company's turnover, and you must be sure that your customer will not recover the debts.

Marketing, Advertising and PR Costs

You can reclaim your marketing, advertising and PR expenses as long as these are used solely for business purposes. This applies to both one-off costs and ongoing fees.

Here are a few examples of common marketing and advertising expenses you may incur:

• Creating a website
• Costs of web hosting
• Purchase of domain names
• Online and print ads

Professional Development Expenses

Professional development costs can be claimed as an allowable expense if the course content directly relates to your trading activity.

Training courses you attend to learn a new skill - which you can use to expand into a new industry or offer different services - aren't allowable unless you can show that these courses are helping you build up on your existing skills or knowledge.

Professional Subscription

Subscriptions can be claimed as an allowable expense as long as these subscriptions are directly relevant to your business and are included in the HMRC list of approved professional bodies .

What Other Expenses can I Claim?

Eye Test Expenses and Glasses

You can claim for vision tests only if you must use visual display equipment as part of your day-to-day work.

The costs of glasses or contact lenses can be claimed only if these are prescribed for screen-based work and aren't a general prescription.

Books, Journals and Magazines

You can only claim the cost of magazine subscriptions, books and journals if they are relevant to your business.

For example, industry-specific journals related to your profession, like a journal on decarbonisation, could be deemed relevant as they could be a source of information to help you stay up-to-date with the latest developments.

Building a website could be claimed as an expense if the money earned from the website exceeds the cost of developing the website.

It is always good to speak to your accountant to determine eligibility.

While donations aren't considered allowable business expenses, they are deductible against your Corporation Tax bill.

This applies when you gift the following to a charity:

• equipment or trading stock (items that your business makes or sells)
• land, property or shares in another company (shares in your own company don't qualify)
• employees (on secondment)
• sponsorship payments

How do I Claim My Tax Deductible Expenses Limited Company?

To claim tax-deductible expenses in the UK, follow these steps:

• Understand Allowable Expenses: Get familiar with the types of expenses that are eligible for tax deductions. In the UK, allowable expenses typically include costs that are incurred wholly and exclusively for business purposes.
• Keep Accurate Records: Maintain detailed records of your expenses, including receipts, invoices, and supporting documents. These records will serve as evidence to support your claims and comply with HMRC requirements.
• Classify Your Expenses: Categorize your expenses into appropriate categories, such as office expenses, travel costs, professional fees, or marketing expenses. This will help you accurately report them on your tax return.
• Complete Your Self-Assessment Tax Return: If you're self-employed or a director of a limited company , you will need to complete a self-assessment tax return. Include your tax-deductible expenses in the relevant sections of the form, such as the "Self-Employment" or "Business Expenses" section.
• Be Aware of Specific Rules and Limits: Some types of expenses may have specific rules or limits on the amount you can claim. For example, there may be restrictions on claiming expenses for entertainment or personal use items. Stay informed about these rules to ensure compliance.
• Seek Professional Advice: If you're unsure about which expenses are tax-deductible or how to accurately claim them, it's advisable to consult with a qualified accountant or tax advisor. They can provide personalized guidance based on your specific circumstances and help you maximize your allowable deductions.
• Retain Documentation: Keep your expense records and supporting documents for at least five years, as HMRC may request to review them for audit purposes.

LTD Company Expenses List:

• Operating Expenses: - Rent and utilities - Office supplies and equipment - Insurance premiums - Business rates - Telephone and internet expenses - Property maintenance and repairs - Business insurance
• Professional Services: - Accounting and bookkeeping fees - Legal fees - Consultancy and advisory services - IT and software services - Marketing and advertising expenses - Professional membership fees - Training and development costs
• Staffing Expenses: - Employee salaries and wages - Employer National Insurance contributions - Pension contributions - Recruitment expenses - Staff training and development costs - Employee benefits (such as health insurance or childcare vouchers)
• Travel and Subsistence: - Business-related travel expenses - Accommodation costs during business trips - Meals and entertainment expenses - Mileage or vehicle expenses
• Business Premises: - Rent or mortgage payments for business premises -Property insurance - Business rates and council tax - Maintenance and repairs
• Office Expenses: -Office furniture and equipment - Printing and stationery - Computer hardware and software -Postage and delivery costs
• Marketing and Advertising: - Website development and maintenance - Advertising campaigns - Graphic design and printing - Online marketing expenses
• Financial and Bank Charges: - Bank fees and charges - Merchant service fees - Interest on business loans or overdrafts - Professional fees for financial services

Non-allowable Ltd Company Expenses

Non-allowable limited company expenses refer to costs that are not eligible for tax deduction or cannot be claimed as legitimate business expenses. Here are some common examples:

• Personal expenses: Any expenses that are purely personal in nature, such as personal clothing, personal travel, or personal entertainment, cannot be claimed as business expenses.
• Fines and penalties: Fines, penalties, and legal fees incurred as a result of breaking the law or regulations are generally not allowable expenses.
• Capital expenses: Costs associated with purchasing or improving fixed assets, like property or equipment, are typically considered capital expenses and are not fully deductible in the year of purchase. Instead, they are typically claimed through capital allowances over a period of time.
• Dividends: Dividend payments made to shareholders are not considered allowable expenses. Dividends are distributed from profits after tax and are subject to dividend tax rather than being deductible as an expense.
• Private healthcare and insurance premiums: Personal health insurance or private medical expenses are generally not allowable as business expenses.
• Entertaining clients: Expenses incurred for purely entertainment purposes, such as lavish client dinners or tickets to sporting events, are usually not allowable as business expenses.

Frequently Asked Questions on Limited Company Expenses

• How Much Does an Accountant Cost for a limited company in 2023? The cost of hiring an accountant for a limited company in 2023 can vary depending on factors such as the size and complexity of your business, the scope of services required, and the accountant's location and experience. On average, you can expect fixed fee packages ranging from £1,000 to £5,000 or more per year, and hourly rates between £75 to £150 or more. Additional services and online accounting software may have separate costs.
• Can I claim for my business vehicle as a tax deduction if I don't own it myself? ‍ Yes, you can claim for your business vehicle as a tax deduction even if you don't own it yourself. If you use a vehicle for business purposes, you can claim the expenses associated with its use as a tax deduction. This applies whether you own the vehicle, lease it, or use it under a hire or rental agreement. However, it's important to note that the specific tax rules and allowable deductions may vary depending on factors such as the type of vehicle, its usage, and the tax regulations in your jurisdiction. Consulting with an accountant or tax advisor is recommended to ensure compliance and maximize your eligible deductions.
• Are all revenue expenses allowable for tax purposes? Not all revenue expenses are allowable for tax purposes. While many revenue expenses incurred for the purpose of running the business are typically allowable, there are certain expenses that may not be eligible for tax deductions. Some common examples of non-allowable expenses include personal expenses, fines and penalties, capital expenditures, and expenses not supported by appropriate documentation.
• What expenses can I claim for employees? Common expenses you can claim for employees include salaries and wages, employer National Insurance contributions (NICs), and pension contributions.
• Should I buy or rent my office space for my limited company? The decision to buy or rent office space for your limited company depends on various factors such as your budget, long-term plans, and specific business needs. Renting provides flexibility and lower upfront costs, while buying offers long-term stability and potential investment benefits. Consider your financial situation, growth projections, and the local property market before making a decision.
• Can I claim rent as a business expense limited company? ‍ Yes, you can claim rent as a business expense for your limited company, as long as it is incurred solely for business purposes.
• Can you claim food expenses in Ltd company? Yes, you can claim food expenses as a limited company under certain circumstances. If the food expenses are incurred wholly and exclusively for business purposes, such as business meetings or when traveling for business, they may be considered allowable expenses.

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ITAT allows Foreign Travelling Expenses of Company Director [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Chandigarh has held that the foreign traveling expenses incurred by the Company for its Managing Director can be allowed as Deduction under the Income Tax Act, 1961.

The sole grievance of the assessee was that the Assessing Officer had disallowed the claim of foreign traveling expenses incurred on the trips undertaken to the UK by its Director for the reason that the assessee has failed to prove that the trip was undertaken for the purpose of business of the assessee.

The Tribunal noted that the only evidence filed in support of the claim was the details of the trip and proof of expenses incurred by way of bills of travel agent and bills of foreign exchange purchased.

“No evidence to prove the visit of the MD to breweries in Edinburgh had been filed, nor any other evidence to prove that the trips were undertaken for a business purpose. Therefore, we uphold the order of the Ld.CIT(A) in disallowing the claim of foreign traveling expenses incurred on the trip undertaken by the MD of the assessee company to the UK.”

With regard to the claim for deduction of the expenses for the trip undertaken by the MD of the assessee company to Germany, the Tribunal found merit in the contention of the assessee.

“Admittedly, the business purpose of the trip to Germany stands established and accepted by the A.O. while allowing expenses incurred on other employees of the assessee company who had accompanied the MD on the said trip. Having accepted the same, he has allowed the expenses incurred on the MD but has restricted it to the extent of Rs.2,17,195/- disallowing expenditure to the extent of Rs.3,27,030/- for the reason that he found the same to be excessive as compared to other employees and personal use could not be ruled out for the same. We cannot agree with this contention of the Revenue. There is no justification for holding the expenses incurred on the MD as excessive,” the Tribunal said.

“Surely the stature of an MD if far above that of the other employees of the company and therefore the expenses cannot be said to be excessive by comparing with the quantum incurred on other employees. Even while disallowing expenses for personal usage, only general statements have been made that some personal element must be involved in the trip to Germany. There is, therefore, we find no basis either for holding the expenses incurred on the MD’s trip to Germany excessive or personal. The Revenue cannot deny the claim of expenditure on whims and fancies. The same is, therefore, not acceptable. In view of the same, we hold that the denial of the claim of expenditure incurred on the trip of the MD of the assessee company to Germany was unwarranted and uncalled for and the same is directed to b allowed to the assessee. The disallowance of the claim of expenditure, therefore, to the extent of Rs.3,27,030/- is deleted,” the Tribunal added.

Malcolm Zoppi Wed Nov 22 2023

Understanding What a Director Can Claim as Expenses in the UK

As a director of a limited company in the UK, it’s crucial to understand what expenses you can claim. Knowing what qualifies as an allowable expense can help you save money on taxes and manage your finances more effectively.  It’s also essential to have a good accountant who can guide you through the process and […]

As a director of a limited company in the UK, it’s crucial to understand what expenses you can claim. Knowing what qualifies as an allowable expense can help you save money on taxes and manage your finances more effectively.  It’s also essential to have a good accountant who can guide you through the process and ensure that you claim expenses legitimately and accurately.

In this section, we’ll explore what expenses directors of limited companies can claim in the UK. We’ll cover allowable expenses, the role of an accountant, and other factors that are important for managing expenses efficiently. If you’re looking for professional assistance in optimizing your business expenses, you can also consider exploring our business services to find expert guidance.

Key Takeaways:

• Directors of limited companies in the UK can claim certain expenses as tax-deductible.
• It’s important to understand what expenses are allowable and keep accurate records.
• An accountant can help you manage expenses and ensure that you claim them legitimately.
• Claiming expenses can save you money on taxes and help you manage your finances more effectively.
• Proper record-keeping and guidance from an accountant are crucial for efficient expense management. For specialized advice on tax matters and legal considerations, a skilled tax lawyer  can provide valuable insights tailored to your business needs.

What are Allowable Expenses for a Director?

Allowable expenses refer to the costs that company directors can claim as tax-deductible from their limited company earnings. It is crucial to distinguish these expenses from personal expenses that cannot be claimed. Proper understanding of allowable expenses can help directors minimize their tax liabilities and maximize their earnings. Here is a breakdown of the expenses that can be claimed by a limited company director:

It is essential to note that the HMRC has strict rules and guidelines surrounding allowable expenses. Expenses must be incurred wholly and exclusively for business purposes, and proper records must be kept to justify the claim. For instance, to claim travel expenses, directors must provide proof of the journey, such as receipts, invoices, or proof of payment. Directors can also claim tax relief on allowable expenses, especially those related to business travel and subsistence. Tax relief can help directors reduce their tax liabilities, leaving more money for investment and other business operations.

Directors can claim the cost of some expenses that are also claimable as a limited company expense. This includes the cost of a company mobile phone, which can be claimed as a business expense. Directors can also claim for the cost of business-related calls made on their personal phone. However, directors cannot claim for personal bills or for personal use of their mobile phone.

In conclusion, it is crucial for directors to understand what expenses they can claim as tax-deductible and what expenses cannot be claimed. By working with an accountant, directors can streamline their expenses and maximize their earnings while complying with HMRC rules and guidelines.

Claiming Expenses for a Home Office

Directors of limited companies in the UK may be eligible to claim expenses for a home office setup used for business purposes. To claim the expenses as allowable business expenses, the office expenses must be incurred wholly and exclusively for business purposes. The expenses cannot include any personal expenses.

Personal expenses: The expenses incurred for personal use and not for business purposes are not allowable as a tax-deductible expense. For example, if a director uses their home office as a recreational room during non-working hours, the expenses incurred for that purpose cannot be claimed.

What Personal Expenses Can You Claim?

If a director uses their home office for business purposes and incurs expenses for the portion of the home used for business purposes, they can claim the following expenses:

HMRC: Eligibility for claiming expenses for a home office can be complicated. It is recommended that directors work with an accountant to ensure they are claiming the correct expenses and complying with HMRC regulations.

Claiming as a Limited Company: When claiming expenses for a home office, directors should ensure they are claiming as a limited company, not as an individual. The expenses must be incurred and claimed by the limited company, not by the director personally.

Corporation Tax: Claiming expenses for a home office can reduce the corporation tax liability of the limited company. Directors should keep accurate records of all the expenses incurred and submit claims in a timely manner.

Claiming Travel Expenses as a Director

Directors of limited companies in the UK can claim certain travel expenses as tax-deductible. This can include business trips, mileage, and the use of personal vehicles for business purposes.

To claim tax relief, directors must keep accurate records of their travel expenses and submit them correctly on their tax return. This can include receipts, invoices, and other documentation demonstrating the expenses incurred.

National insurance contributions and income tax must be paid on any expenses claimed as part of a director’s personal earnings. However, business expenses can be claimed separately and are not subject to income tax or national insurance contributions.

Business Use of Personal Vehicles

Directors who use their personal vehicles for business purposes can claim expenses for the cost of fuel, insurance, maintenance, and other related expenses. The HMRC allows directors to claim a rate of £0.45 per mile for the first 10,000 miles and £0.25 per mile thereafter.

If a director of a limited company makes a claim for business use of a personal vehicle, they must keep detailed records of their mileage and the purpose of each journey. They must also be able to demonstrate that the driving was for business purposes and not for personal use.

Business Trips

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Directors can claim expenses for travel and accommodation expenses incurred during business trips. This can include flights, train journeys, hotel stays, and other related expenses.

Directors can also claim £150 per night for accommodation and subsistence costs when travelling to a temporary workplace. However, this must be for a genuine business purpose and cannot be claimed for personal travel expenses.

Business Calls

Directors can claim expenses for business calls made from their personal mobile phone, as long as they can demonstrate that the calls were for business purposes. However, if there is personal use of the mobile phone, the expenses can only be claimed for the cost of the business calls.

Any business-related expenses can be claimed by the limited company, as long as they are for business purposes and are not considered personal expenses. This can include the cost of a company mobile phone or landline, as well as call charges and other related expenses.

Overall, it is important for directors to keep accurate records of their travel expenses and ensure that they are claiming only for expenses that are eligible for tax relief. By working closely with an accountant and understanding what expenses can be claimed, directors can manage their finances efficiently and reduce their tax liabilities.

Claiming Expenses for Business-related Meals and Entertainment

As a director of a limited company in the UK, you may be wondering if you can claim expenses for food and drink during business-related events or meetings. The answer is yes, but it is essential to understand the rules set by HMRC to claim these expenses legitimately.

The expenses incurred for business-related meals and entertainment can be claimed as allowable business expenses if they are incurred wholly and exclusively for business purposes. Personal expenses cannot be claimed. For instance, a director can claim the cost of a meal during a business meeting or entertainment expenses for a client as long as it is reasonable in the circumstances and benefits the company.

HMRC has guidelines on the limits and conditions for claiming expenses related to food and drink. Directors can claim expenses for meals and drinks provided on business travels, such as meals during long-distance journeys or overnight stays. However, if the director is traveling for more than three months to a temporary workplace, the expenses cannot be claimed.

It is essential to keep accurate records of such expenses, including the purpose of the meal or entertainment and the attendees. If the expenses include both business and personal expenses, it is crucial to separate and claim only the business expenses.

It is crucial to remember that expenses for alcohol and the cost of employees attending events must be included in company accounts as employee benefits and reported to HMRC. The expenses must be incurred wholly and exclusively for business purposes to be tax-deductible.

In conclusion, claiming expenses for business-related meals and entertainment can be a great way to offset costs and reduce your tax bill. However, it is essential to understand the rules set by HMRC and keep accurate records of such expenses to claim them legitimately.

Claiming Expenses for Glasses or Contact Lenses

Directors who wear glasses or contact lenses for business purposes may be eligible to claim back some of the costs incurred. These costs can be claimed as allowable expenses, reducing the overall corporation tax bill for the limited company.

According to HMRC guidelines, directors can claim the cost of glasses or contact lenses if they are used for business purposes and if the prescription is solely for use at a computer screen. The company name should be used when claiming these expenses.

However, it’s important to note that directors can only claim up to £4 per week for vision correction expenses, even if the actual cost incurred exceeds this amount. This is to cover the cost of regular eye tests.

As shown in the table above, directors can claim allowable expenses for glasses or contact lenses up to the amount incurred, but only up to £4 per week. The expenses should be used by the business, and not for personal use.

When making a claim, directors should keep proof of expenses, such as receipts and invoices. All expenses incurred must be for business purposes and used exclusively for that reason.

Claiming Expenses for Business and Personal Phone Usage

Directors of limited companies often use their personal mobile phones for business calls. It’s important to understand what expenses they can claim back for phone usage.

If a phone is used purely for business, then the expense can be claimed as a tax-deductible expense. But if a phone is used for both personal and business purposes, then only the business calls can be claimed as an expense.

Directors can claim the cost of the business calls they make on their personal phone, but it’s important to keep detailed records of which calls were business-related. An itemized phone bill is helpful in this regard.

If the company pays for the phone or contract, then the entire bill can be claimed as an expense. But if the director is reimbursed by the company for some of the cost, only the difference can be claimed as a business expense.

It’s important to keep in mind that personal tax may be applicable if the reimbursements are seen as an additional benefit. However, if the expenses are allowable, they can be claimed on the company’s tax return.

Overall, directors can claim expenses for business calls, as long as they keep detailed records and only claim for the cost of business calls. If the phone or contract is paid for by the company, then the entire cost can be claimed as an expense. It’s important to keep in mind the tax implications and seek professional advice if necessary.

Summary of Key Points:

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• Directors can claim expenses for business calls on their personal phone only if they keep records of which calls were business-related.
• If the company pays for the phone or contract, the entire bill can be claimed as an expense.
• Personal tax may be applicable if reimbursements are deemed as an additional benefit.
• It’s important to seek professional advice if uncertain about the tax implications.

Claiming Expenses for a Company Car

Directors of limited companies in the UK are entitled to claim expenses for a company car if it is used for business purposes. This can include fuel expenses, maintenance costs, insurance, and other related expenses. It is important to note that any personal use of the car must be declared as a benefit in kind on the director’s personal tax return.

To claim the entire bill for a company car, the vehicle must be used exclusively for business purposes. If the director also uses the car for personal reasons, they can only claim the costs incurred for business use.

Directors may also claim the cost of vision tests if they are required for driving purposes. This includes the cost of glasses or contact lenses if they are used exclusively for business purposes.

It is important for directors to keep accurate records of their business mileage and expenses related to the company car. They should also ensure that they have the necessary insurance coverage for business use of the vehicle.

Claiming expenses for a company car can be a complex process, and directors may benefit from the services of an accountant to ensure they are claiming all eligible expenses while remaining compliant with HMRC regulations.

Claiming Expenses for Business and Personal Insurance

Directors can claim expenses for business and personal insurance policies, but it is important to understand the rules and eligibility criteria.

Business insurance policies, such as liability insurance and professional indemnity insurance, are considered allowable expenses and can be claimed for tax relief. However, it is essential that the policy is exclusively for business purposes and not for personal use. The cost of the policy can be claimed in full, without any limits, as long as it is necessary for business operations.

Personal insurance policies, such as health or life insurance, cannot be claimed as business expenses. However, if the policy covers the director as an employee of the company, it can be claimed as a business expense for tax purposes. The amount that can be claimed is limited to the cost of similar policies that employees would be entitled to, and the policy must be necessary for the business to operate.

Corporation Tax and Claim Limits

Expenses claimed for business and personal insurance policies are allowable expenses and can be deducted from the company’s profits, reducing the corporation tax liability. The corporation tax rate in the United Kingdom is currently 19%.

There is no limit on the amount directors can claim for business insurance policies, as long as they are exclusively for business use. However, when claiming personal insurance policies, directors can only claim up to the amount of similar policies that employees would be entitled to.

It is also important to note that employees can claim for business-related insurance policies, but the amount they can claim is limited to the cost of similar policies that the company would offer to them.

Below is a table summarising the key points regarding claiming expenses for business and personal insurance:

Claiming Other Allowable Expenses

Directors can claim various expenses beyond what has been outlined in the previous sections. Here are some additional expenses you may be able to claim:

Directors should always consult with their accountant or tax advisor to ensure that all expenses claimed are legitimate and adhere to HMRC guidelines.

In conclusion, claiming allowable expenses is an essential part of managing the finances of a limited company director in the UK. By understanding what expenses can be claimed and keeping proper records, directors can save money on their tax bills and improve their cash flow.

Working alongside an accountant can also help to ensure that all expenses are claimed correctly and in a timely manner, which can avoid any potential issues with HMRC.

Remember to keep all receipts and proof of expenses, as this will be vital if HMRC ever requests to see them. It is also essential to note that personal expenses cannot be claimed, so it is crucial to keep business and personal expenses separate.

Overall, claiming allowable expenses can provide significant tax relief for directors of limited companies, and it is important to take advantage of this wherever possible. By doing so, directors can focus their resources on growing their business and achieving their financial goals.

What expenses can a director claim in the UK?

Directors of limited companies in the UK can claim various expenses that are deemed allowable by HMRC. These expenses can include office expenses, business-related travel costs, utilities, and other expenses that are necessary for running the business.

What are allowable expenses for a director?

Allowable expenses for a director include office expenses such as rent and supplies, business-related travel expenses, utility bills, and other costs incurred for business purposes. It’s important to keep proper records and consult with an accountant to ensure compliance with HMRC regulations.

Can a director claim expenses for a home office?

Yes, directors can claim expenses for a home office if it is used for business purposes. This can include a portion of the rent or mortgage, utility bills, and office supplies. It’s crucial to have proper documentation and consult with an accountant to ensure compliance with HMRC guidelines.

What are the rules for claiming travel expenses as a director?

Directors can claim travel expenses incurred for business purposes, including business trips, mileage, and the use of personal vehicles. However, there are limits and requirements set by HMRC, and proper records must be kept to substantiate the claims.

Can a director claim expenses for business-related meals and entertainment?

Yes, directors can claim expenses for business-related meals and entertainment, subject to certain limits and conditions set by HMRC. It’s important to maintain detailed records and ensure that the expenses are solely for business purposes.

Can a director claim expenses for glasses or contact lenses?

Directors can claim expenses for glasses or contact lenses if they are used solely for business purposes. However, there are specific criteria that need to be met, and it’s advisable to consult with an accountant to ensure eligibility and compliance with HMRC regulations.

Can a director claim expenses for business and personal phone usage?

Directors can claim expenses for business phone usage, but personal calls should be clearly distinguished. The expenses must be solely for business purposes and comply with HMRC guidelines. It’s recommended to consult with an accountant to ensure compliance and proper record-keeping.

Can a director claim expenses for a company car?

Directors can claim expenses for a company car, including fuel expenses, maintenance costs, insurance, and other related expenses. However, it’s essential to keep accurate records and distinguish between personal and business usage. Consultation with an accountant is recommended to ensure compliance with HMRC regulations.

Can a director claim expenses for business and personal insurance?

Directors can claim expenses for business and personal insurance policies, such as liability insurance and professional indemnity insurance. However, there are specific criteria and limitations, and it’s advisable to consult with an accountant to ensure eligibility and compliance with tax laws.

Are there any other allowable expenses that a director can claim?

Yes, directors can claim other allowable expenses such as professional development expenses, subscriptions, and other costs directly incurred in the course of running a limited company. Proper documentation and guidance from an accountant can help ensure compliance with HMRC regulations.

Find out more!

If you want to read more in this subject area, you might find some of our other blogs interesting:

• Step-by-Step Guide on How to Transfer Shares to a Holding Company
• Breach of Settlement Agreement: Consequences and Remedies Explained
• Who Gets the Money When a Company is Sold?
• What is a Counter Offer in Contract Law? Explained Simply and Clearly
• Understanding the Costs: How Much Do Injunctions Cost in the UK?

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Foreign travel expenses of MD of company for business purpose allowable

Case law details, ms mount shivalik brewereis ltd. vs dcit (itat chandigarh).

Conclusion: Foreign travelling expenses incurred by assessee-company for its Managing Director (MD) should be allowed as deduction as AO had no basis for holding the expenses incurred on the MD’s trip to Germany as excessive or personal.

Held: AO allowed foreign travelling expenditure incurred by managing director (MD) on his trip to Germany to a certain extent and the balance amount including foreign travelling expenses incurred on the trips undertaken to the UK by its Director was disallowed holding the same to be extravagant and some personal element was involved in the same. It was held no evidence to prove the visit of the MD to breweries in Edinburgh had been filed, nor any other evidence to prove that the trips were undertaken for a business purpose. Therefore, the claim of foreign travelling expenses incurred on the trip undertaken by the MD of the assessee company to the UK was rightly disallowed. However, with regard to expenses incurred for the trip undertaken to Germany, there was no basis either for holding the expenses incurred on the MD’s trip to Germany excessive or personal. AO could not deny the claim of expenditure on whims and fancies, therefore, the denial of the claim of expenditure incurred on the trip of the MD of assessee-company to Germany was unwarranted and uncalled for and the same was directed to be allowed to the assessee

FULL TEXT OF THE ITAT JUDGEMENT

The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-2, Chandigarh (in short CIT(A) dated 31.12.2014 passed u/s 250(6) of the Income Tax Act, 1961 (in short referred to as ‘Act’).

2. At the outset, it was pointed out that this was the second round before the I.T.A.T. Drawing our attention to the order of the Ld.CIT(A) at para 2.1 it was pointed out that in the first round before the I.T.A.T. the issues relating to claim of depreciation on Effluent Treatment Plant (in short referred to as ‘ETP’) of Rs.20,84,484/- and foreign travelling expenses of Managing Director of Rs.14,21,898/- were restored to the file of the A.O. directing him to re-examine the issue and also directing the assessee to produce further evidence to substantiate its claim of depreciation on ETP to re-examine the claim of foreign travelling in the light of the details filed before the CIT(A). It was thereafter stated that both the above additions were re-affirmed by the A.O. and the same were confirmed by the CIT(A).

3. Aggrieved by the same the assessee has now come up in appeal before us. Taking up ground of appeal No.1 relating to disallowance of depreciation on ETP and which read as under:

“1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law in upholding the addition of Rs.20,80,484/- made on account of disallowance of depreciation on Effluent Treatment Plant which is arbitrary and unjustified.”

4. The Ld. counsel for assessee first took us through the order of the I.T.A.T. in the first round dated 24.9.2012 restoring the issue back to the A.O. Drawing our attention to paras 8 to 14 of the order wherein the issue was dealt with the Ld. counsel for assessee pointed out that the facts relating to the issue were that the assessee had shown an addition of Rs.41,60,961/- on account of addition to ETP on which depreciation was allowable @ 100%. But the assessee had claimed depreciation @ 50% only, having used it for less than 180 days. Thus depreciation of 20,80,484/- was claimed by the assessee on the ETP installed. It was thereafter pointed out that the A.O. had denied the said claim of the assessee by stating that the invoices of the purchases of the plant revealed that the purchases were made from November 2008 to March 2009 for the said ETP, which meant that the assessee was in the process of designing and installing the plant and, therefore, could not have put to use in the year. The matter was carried in appeal before the CIT(A) who upheld the addition. Thereafter drawing our attention to para 11 of the order the Ld. counsel for assessee pointed out that various purchase bills of the plant were placed before the I.T.A.T. and also clearance certificate issued by Punjab Pollution Control Board dated 20.2.2009 to prove that the assessee had already put the ETP to use. It was pointed out that after going through the certificate, the I.T.A.T. held that the said certificate was only a No Objection Certificate for release of additional power and the assessee must have approached the electricity authorities for release of power only thereafter and after which the plant could not have been operated and sine no further evidence was filed by the assessee to substantiate its claim of having put the ETP to use in the year itself, the matter was restored back to the A.O. for re-examination. The Ld. counsel for assessee thereafter drew our attention to the assessment order framed thereafter and pointed out that the assessee during the course of proceedings before the A.O. had filed additional documents as proof of having installed the ETP during the year as under:

i) Brewer and Engineer Certificate

ii) PSEB demand notice for increase in load

iii) PPCB clearance certificate dated 20.2.2009

iv) PPCB consent dated 26.2.2009

5. It was thereafter pointed out that the A.O. had rejected all the above evidences as not being sufficient to prove the assessee’s claim holding that brewer certificate was issued by Chief Engineer and Brewer of the assessee company and, therefore, could not be relied upon and rest of the evidences only showed that the assessee’s request for additional load had been proved and none of the documents gave a clear cut idea about the actual date when the plant was put to use. It was thereafter pointed out that the A.O. conducted his own enquiries by seeking information u/s 133(6) of the Act from the Additional Superintendent Engineer, Operation Division (PSPCL), Lalru, Punjab regarding the date on which the additional power load of 350.064 KW was actually sanctioned by PSEB (now PSPCL) to the assessee. It was pointed out from the order that the same was stated to have been granted to the assessee only on 20.5.2009. The said information was confronted to the assessee who stated in reply that new ETP had run on the existing power load available with the company. The A.O. dismissed this contention of the assessee stating that the assessee had never before raised this contention before any of the authorities i.e. the A.O., CIT(A) or even I.T.A.T. in the first round. He, therefore, held that since the load to run the plant was granted only in the next financial year, the assessee could not have possibility put to use the ETP in the impugned year. The depreciation claimed by the assessee of Rs.20,80,484/- was accordingly disallowed by the A.O. It was thereafter pointed out that the CIT(A) also upheld the disallowance for the same reason. Our attention was drawn to the findings of the Ld.CIT(A) at para 3.3 of his order as under:

“3.3 I have considered the facts of the issue. The appellant had produced certain documents before the Assessing Officer, which have rightly been rejected by the Assessing Officer, since these were not relevant to decide as to when the Effluent Treatment Plant was put to use. The certificate issued by the Brewer and Engineer of appellant company has rightly been rejected by the Assessing Officer, since it has been signed by the appellant’s own employee. The office of Additional Superintendent Engineer has confirmed that the additional power load was granted to the appellant only on 20.05.2009 and the Effluent Treatment Plant could not have been put into operation without the additional power load. The contention of the appellant is that the said plant was run on the existing power load, but it is not possible to run such a heavy plant without additional power load and the electricity department would not permit the same. Moreover, this argument was never taken in the original assessment proceedings or in the appellate proceedings. Therefore, it is held that the Assessing Officer has rightly disallowed the depreciation and her action in this regard is accordingly upheld. Ground of appeal No. 1 is dismissed.”

6. Thereafter the Ld. counsel for assessee made detailed submissions before us describing the nature of the business of the assessee of being manufacturing and sales of beer and that it its first ETP was installed in financial year 1972-73 when the first brewery was set up and thereafter its upgradation was done around 3-4 times. It was contended that the assessee has only one ETP and the addition made during the year was only by way of enhancing the capacity of ETP from 100 KLD to 156 KLD. It was pointed out that ETP was purchased from M/s Lars Enviro Pvt. Ltd. and put to use on 27.1.2009 as per the Chief Brewer certificate. The different components of the ETP were pointed out to us and that out of various components 3 were prefabricated while the balance was civil work done at the site of the assessee. The assessee thereafter contended that the average power load needed to run ETP plant was 70 KW and after installation of ETP on 27.1.2009 and its commissioning immediately after receiving the consent letter from PPCB on 20.2.2009, the ETP was put to use on the existing power load itself since this was off season of beer industry and extra load wasnot required on account of the low capacity production of beer during this period. It was pointed out that the increase in power load was thereafter made available on 27.5.2009. The written submissions to this effect were filed before us dated 5.9.20 18 as under:

Respectfully submit as under: –

1. Molson Coors India Pvt. Ltd., formerly known as Mount Shivalik Breweries Ltd., was incorporated on 31 st October, 1972, and started business of Manufacturing/Sales of Beer at Bhankarpur, Derabassi.

2. That the first Effluent Treatment plant (hereinafter mentioned as ETP), was installed in Financial Year 1972-73, when the first brewery was set up in Bhankarpur and thereafter its upgradation was done around 3-4 times, as per the need of the plant.

3. That during the year under consideration, ETP was installed on 01.2009 and was commissioned immediately after receiving consent letter dated 20.02.2009 from Punjab Pollution Control Board. Since this period being Off Season for beer Industry, the existing power load was sufficient for the commissioning of new ETP plant. The increase in power load from 1164.844KW by 350.064 KW was made available on dated 27.05.2009, after receipt of sanction from PSEB.

4. That the unit has only one ETP, of which capacity was enhanced from 100 KLD to 156 KLD. (Kilo liters per )

5. That this ETP was purchased from M/s Lars Enviro Pvt. & had been installed & commissioned at Mount Shivalik Breweries Ltd, Bhankarpur and put to use on 27 th January,2009. No trial run was required for this type of plant. That the average time required to install this plant around 5-6 months

6. Effluent Treatment Plant or ETP is one type of waste water treatment method which is particularly designed to purify industrial waste water. Its aim is to release safe water to environment from the harmful effect caused by the effluent

The quantity & quality of waste water generation fluctuates depending on operation like raw material handling, wort preparation, fermentation, water consumption, solid liquid separation, packaging etc.

The effluent discharged is highly organic & acidic in nature with high COD, BOD, consisting of easily biodegradable sugars, soluble starch, ethanol, volatile, fatty acid, suspended solids, yeast etc. which may pollute the water bodies considerably if drained as such. In order to meet requirements of CPCB/PPCB, ETP plant is installed which consists of following: Collection Tank

1. UASB Reactor

2. Primary clarifier

3. Aerobic Treatment Tank

4. Secondary Clarifier

5. Sand Filter

6. Activated Carbon Filter

7. Studge Drying Beds

That out of the above components of the plant Sand Filter and Activated Carbon is prefabricated and balance is civil work which is done at the site. Average power load needed to run the ETP plant is 70KW. That total area covered by this plant is around 3458 Square meters. The Dimensions of the components of ETP are as under: –

That the photographs are enclosed for your ready reference”.

7. The Ld. counsel for assessee, therefore, contended that the ETP being capable of running of the existing power load the denial of claim of depreciation merely because the additional load was sanctioned in the succeeding year was wrong. The Ld. counsel for assessee further stated that in any case denial of depreciation was tax neutral action since the asset was eligible for depreciation @ 100% which having been denied in the impugned year to the extent of 50% as claimed by the assessee, was to be allowed completely @ 100% in the succeeding year and that the assessee had returned sufficient profits in both the years. Therefore, the additional taxes collected in the impugned year would be required to be refunded in the succeeding year on account of the said action of the A.O.

8. The Ld. DR, on the other hand, relied upon the order of the lower authorities.

9. We have heard the rival contentions, perused the orders of the authorities below. The issue to be determined and adjudicated is whether the assessee was able to establish that its ETP was installed and put to use during the year, enabling it to claim depreciation on the same. The facts which are not disputed are that all the purchase bills relating to various components necessary for construction of ETP relate to the period up to March, 2009 of the impugned year and none of the bills pertain to the succeeding year. Also the assessee had obtained no objection certificate from the Punjab Pollution Control Board for release of additional power load of 3 50.064 KW to the assessee and had also obtained sanction from the said Board for discharge of effluent out of the premises of the assessee breweries by end of February, 2009 in the form of clearance certificate issued by the Board dated 20.2.2009 and consent letter given by the Board for discharge of effluent dated 26.2.2009. Further the Chief Engineer and Chief Brewer of the assessee company had certified ETP having been installed and commissioned and thus put to use on 27.02.2009. Thus the above facts undeniably prove that the plant was installed before the close of the year and only reason for restoring the issue back to the A.O. in the first round by the I.T.A.T. was that the assessee was required to substantiate that the asset was put to use also during the year since no evidence in this regard was filed by the assessee having furnished only the clearance certificate from PPCB for release of additional power load but no evidence of having taken the same had been filed. Thus what the assessee was required to prove was that ETP had been put to use during the year, its installation for all purposes not being in dispute. The assessee in this regard, we find, has stated that being installed, the ETP was ready for use also since it was capable of being used with the available power capacity with the assessee since it was the lean period of working of the assessee brewery and less load was required for running the ETP. The Revenue, on the other hand, has disputed this claime of the assessee stating that it had not taken this ground earlier before the authorities in the first round and further for the reason that additional load was provided only in the subsequent year. On this basis the Revenue has rested its case that the assessee’s contention of putting ETP to use in the current year cannot be believed and since additional load was sanctioned in the succeeding year only it was to be treated as having been put to use in the succeeding year only. We do not find any reason to disbelieve the contention of the assessee that ETP was put to use on the existing load available with the assessee. The contention of the assessee that existing load was sufficient for commissioning of the new ETP plant since this period was the off season for the beer industry, we find that the Revenue has not controverted the same. The Revenue has not disputed the fact that this was the lean period for the beer industry. Therefore, it logically follows that the power load required to run the assessee’s brewery being far less than the normal and the assessee could have managed to run the same with the existing power load. The contention of the Revenue, therefore, that it was not possible to run such a heavy plant without additional power load is, therefore, without any merits and is dismissed by us. Moreover, we do not find any merit in the contention of the Revenue that this plea of the assessee is unacceptable for the reason that it was not raised by the assessee before the authorities earlier in the first round. The merits of the contention are to be judged on the basis of the facts on which it is based and have nothing to do with the point of time with which they are raised. The fact that this was the lean period of the beer industry and, therefore, the brewery was capable of being run on far less than normal electricity load having not been disputed, there was merit in the claim of the assessee that the addition made to the capacity of the existing ETP plant in the impugned year was capable of running on the available power load and without pointing any falsity in the contention raised by the assessee the same cannot be rejected merely for the reason that it was not raised earlier by the assessee. Moreover we also find merit in the contention of the assessee that the entire exercise of disallowance of depreciation is a tax neutral exercise since the depreciation disallowed in the impugned year is eligible for allowance in the succeeding year since the assessee as per the revenue authorities had put to use the ETP in the succeeding year and rate of depreciation on the same @ 100% is not disputed. Further the assessee has contended that it had returned sufficient profits in both the years and, therefore, the tax demand raised in the impugned year by denial of deduction on depreciation claimed by the assessee on ETP plant would be required to be refunded in the succeeding year by granting depreciation in the said year. In view of the above facts and circumstances of the case we hold that the installation of the ETP in the impugned year not being in dispute and the assessee having proved that ETP was capable of being run on the existing load available with the assessee in the impugned period being a lean period in the beer industry the factum of ETP being put to use in the impugned year stands established. The assessee is, therefore, we hold, is eligible to claim depreciation @ 50% of the value of the asset. The order passed by the CIT(A) denying the said claim is, therefore, set aside and ground No. 1 raised by the assessee is, therefore, allowed.

10. Ground No.2 raised by the assessee reads as under:

“2. That the Ld. Commissioner of Income Tax (Appeals) has further erred in law as well as on facts in upholding the addition of Rs.12,04,703/- made on account of disallowance of foreign travel expenses which is arbitrary and unjustified.”

The above ground relates to the disallowance of foreign traveling expenses made by the A.O. and upheld by the CIT(A) to the extent of Rs.12,04,703/-.

11. Brief facts relating to the issue are that the assessee had claimed an amount of Rs.14,21,898 – on account of foreign travelling of the Managing Director (MD) of the assessee company. The assessee had submitted in the original assessment proceedings that the visits were for business purposes, but had not filed any documentary evidences to prove that the said expenses were incurred wholly and exclusively for business purposes and so the entire amount was disallowed. The assessee had filed certain evidences in appellate proceedings before Commissioner of Income Tax (Appeals), but reason for not submitting the same before the Assessing Officer had not been given and so these were not accepted and the addition was confirmed. The ITAT directed the Assessing Officer to re-examine the issue by considering the details filed before Commissioner of Income Tax (Appeals). The assessee accordingly produced certain documents before the A.O. in the second round, which were rejected as not sufficient for establishing the factum of having incurred expenditure wholly and exclusively for the purpose of business of the assessee stating that they only gave the details of the expenses incurred and only proved the factum of expenditure having been incurred without establishing that they were incurred for the purpose business of the assessee. The A.O., however, allowed the expenditure to the extent of Rs.2,17,195/- incurred by the Managing Director (in short ‘MD’) on his trip to Germany on finding that expenses of the employees of the assessee company on the trip undertaken to Germany had been allowed by the A.O. and on holding that the said amount was sufficient for incurring on MD of the company while the remaining was disallowed holding the same to be extravagant and holding that the some personal element could have also been involved in the same. The Ld.CIT(A) upheld the order of the A.O.

12. Before us, the Ld. counsel for assessee reiterated the contentions made before the lower authorities stating that the MD of the company had undertaken two trips one to U.K. and the other to Germany. It was contended that in U.K. the MD had visited the breweries in Edinburgh, UK, namely Heineken, which had acquired the UK business of “Scottish & New Castle” and “Scottish Courage Brewing Ltd.” in April, 2008 and to explore new technical and business opportunities in the beer business. It was contended that the MD had stayed at Hotel Balmoral, Edinburgh. Copy of brief profile of the Heineken UK was also filed. As far as the trip undertaken to Germany, it was contended that the main purpose was to attend the annual European trade fair for the beverage industry named ‘The Brau Bevile 2008’ in Nuremberg, Germany which was one of the most important European trade fairs for production and marketing of beer and soft drinks. It was further contended that the expenditure incurred on the trip of the employees of the assessee company to Germany, Nuremberg had been allowed by the A.O. and, therefore, there was no reason to disallow a portion of the expenditure incurred on the MD also on the same trip.

13. The Ld. DR, on the other hand, relied upon the orders of the authorities below stating that the assessee had only raised general contentions and had failed to prove with evidence the business purpose of the trips undertaken and further that the trip undertaken to Germany Nuremberg had been rightly disallowed to the extent of Rs.3,27,030/- since the personal element could not be ruled out in the same and also that the expenditure incurred were excessive since while a sum of 2,17,195/- was spent on the trip of one employee the amounts spent on the trip of MD was Rs.5,44,225/- which was unreasonable and excessive and this rightly denied by the revenue authorities.

14. We have heard the rival contentions. Vis-à-vis the claim of the assessee of foreign travelling expenses incurred on the trips undertaken to UK we agree with the revenue authorities that the assessee has failed to prove that the trip was undertaken for the purpose of business of the assessee. The only evidence, we find, which have been filed by the assessee gives the details of the trip and proof of expenses incurred by way of bills of travel agent and bills of foreign exchange purchased. No evidence to prove the visit of the MD to breweries in Edinburgh had been filed, nor any other evidence to prove that the trips were undertaken for business purpose. Therefore, we uphold the order of the CIT(A) in disallowing the claim of foreign travelling expenses incurred on the trip undertaken by the MD of the assessee company to UK. As far as the trip undertaken by the MD of the assessee company to Germany, we find merit in the contention of the assessee. Admittedly, the business purpose of the trip to Germany stands established and accepted by the A.O. while allowing expenses incurred on other employees of the assessee company who had accompanied the MD on the said trip. Having accepted the same, he has allowed the expenses incurred on the MD but has restricted it to the extent of Rs.2, 17,195/- disallowing expenditure to the extent of Rs.3,27,030/- for the reason that he found the same to be excessive as compared to other employees and personal use could not be ruled out for the same. We cannot agree with this contention of the Revenue. There is no justification for holding the expenses incurred on the MD as excessive. Surely the stature of an MD if far above that of the other employees of the company and therefore the expenses cannot be said to be excessive by comparing with the quantum incurred on other employees.Even while disallowing expenses for personal usage, only general statements have been made that some personal element must be involved in the trip to Germany. There is therefore we find no basis either for holding the expenses incurred on the MD’s trip to Germany excessive or personal. The Revenue cannot deny the claim of expenditure on whims and fancies. The same is, therefore, not acceptable. In view of the same, we hold that the denial of claim of expenditure incurred on the trip of the MD of the assessee company to Germany was unwarranted and uncalled for and the same is directed to b allowed to the assessee. The disallowance of claim of expenditure, therefore, to the extent of Rs.3,27,030/- is deleted.

In effect the claim of expenditure incurred on the trip of MD to UK is denied while that on the trip to Germany is allowed in totality. The ground of appeal No.2 raised by the assessee is, therefore, partly allowed.

15. In effect, the appeal of the assessee is partly allowed.

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Claiming a tax deduction for business travel expenses

You can claim a tax deduction for expenses you incur travelling for your business.

Last updated 18 August 2019

As a business owner, the general rule is that you can claim deductions for expenses if you or your employee are travelling for business purposes. A travel diary is:

• compulsory for sole traders and partners in a partnership to record overnight business travel expenses
• highly recommended for everyone else.

For a summary of this content in poster format, see Travel expenses (PDF 526KB) This link will download a file .

Expenses you can claim

Your business can claim a deduction for travel expenses related to your business, whether the travel is taken within a day, overnight, or for many nights.

Expenses you can claim include:

• train, tram, bus, taxi, or ride-sourcing fares
• car hire fees and the costs you incur (such as fuel, tolls and car parking) when using a hire car for business purposes
• accommodation
• meals, if you are away overnight.

To claim expenses for overnight travel, you must have a permanent home elsewhere and your business must require you to stay away from home overnight.

If you are entitled to goods and services tax (GST) input tax credits, you must claim your deduction in your income tax return at the GST exclusive amount.

Expenses you can't claim

You can only claim the business portion of business travel expenses. You must exclude any private expenses, such as:

• a holiday or visit to family or friends that is combined with the business travel
• the expenses associated with you or your employee taking a family member on the trip
• souvenirs and gifts
• sightseeing and entertainment
• visas, passports or travel insurance
• travel expenses that arise because you are relocating or living away from home
• travel undertaken before you started running your business.
• Claiming a tax deduction for motor vehicle expenses – information about business motor vehicle expenses and travelling to and from your places of business.

Media: Business deductions - Travel expenses: Tax basics for small business https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfw7bqp External Link ( Duration: 01:23)

How to claim employee travel expenses

If your employees travel for your business, the business must actually pay for the travel expense to be able to claim it as a deduction. The business can pay for the expense by:

• paying directly for the expense from the business account
• paying a travel allowance to the employee
• reimbursing the employee for their expenses.

Fringe benefits tax (FBT) may apply if your business pays for or reimburses your employees for their travel expenses. Certain exemptions and concessions may apply to reduce your FBT liability. For example, your business may not have an FBT liability if it reimburses an employee for their travel expenses to attend a work conference, which the employee would have been able to claim as an income tax deduction if you hadn't reimbursed them.

You will be liable for FBT if your employee extended their travel for private purposes and you reimburse the employee for these private costs. If your business provides benefits to your employees, you may need to obtain some records from the employee.

If you are the director of a company and the business pays for private portions of your travel expenses, there may also be Division 7A implications.

If you pay your employees a travel allowance or a living-away-from-home allowance, there are different considerations.

• Fringe benefits tax
• Private company benefits – Division 7A dividends
• Travel allowances

Travel diaries

Sole traders and partners in a partnership.

If you are a sole trader or a partner in a partnership and you travel for six or more consecutive nights, you must keep a travel diary or similar document before your travel ends, or as soon as possible afterwards. In your travel diary, record the detail of each business activity including:

• what the activity was
• the date and approximate time the business activity began
• how long the business activity lasted
• the name of the place where the business activity occurred.

Your travel diary can be in any format as long as it contains sufficient detail to justify what you are claiming.

Example 1: Rebecca

Rebecca owns a business as a sole trader landscape gardener. She is invited to exhibit at the Chelsea flower show in England. This involves six days of work representing her business at the show. After the show is finished, Rebecca spends some time sightseeing.

Rebecca’s son James joins her on her trip. James is not involved in the business and spends the days exploring London while Rebecca is at the Chelsea flower show.

As Rebecca is travelling for more than six nights, she keeps the below travel diary.

Travel diary for May:

• Saturday 9 May – 10.00am flight Q13 to London (via Dubai)
• Sunday 10 May – Arrive London 1.00pm local time. Bus to hotel in Chelsea 3.00pm
• Monday 11 May – Rest day
• Tuesday 12 May – Chelsea flower show set-up day from 9.00am
• Wednesday 13 May – Chelsea flower show day 1
• Thursday 14 May – Chelsea flower show day 2
• Friday 15 May – Chelsea flower show day 3
• Saturday 16 May – Chelsea flower show day 4
• Sunday 17 May – Chelsea flower show day 5, ends 5.00pm
• Monday 18 May – Sightseeing in London
• Tuesday 19 May – Sightseeing day trip to Oxford
• Wednesday 20 May – Bus to airport. Flight home Q23 6.00pm from London, arrive 10.00pm local time.

This shows that Rebecca travelled for 12 days. She spent the majority of the time on business related activities and took the opportunity to do some sightseeing while in London for two extra days. Rebecca can only claim deductions for the business-related portion of her travel.

Rebecca can claim:

• the return airfare to London (which does not have to be separated out as the primary purpose of her travel is for business, the sightseeing was incidental)
• her bus fares to and from the airport
• the costs associated with working at the Chelsea flower show including the exhibitors fee and transport to and from the location from her hotel
• Rebecca’s accommodation in Chelsea up to and including 17 May
• meals and incidental costs on the days she attended the Chelsea flower show.

Rebecca cannot claim:

• accommodation, meals or transport expenses on the days noted for sightseeing
• additional private costs from the whole of her time away (such as souvenirs)
• costs of visas, passports or travel insurance
• any of James’ expenses (such as his airfares, the cost of his meals or the cost of an extra hotel room for James).

Example 2: Noah

Noah owns a business as a sole trader interior designer and decorator. He lives and works in Perth. A new customer has asked him to design and decorate her home in Broome. This will take two weeks to complete.

Noah flies to Broome on Sunday evening and returns to Perth two weeks later. On the weekend he does some sightseeing and catches up with friends. He keeps the following diary:

• Sunday: Fly to Broome (depart 4.00pm, arrive 6.30pm)
• Monday 2 September: Purchase decorating supplies 9.00am–10.30am. Working at client’s house 10.45am – 4.00pm
• Tuesday 3 – Friday 6 September: Working at client’s house 7.30am to 4.00pm
• Saturday: Day trip to Horizontal Falls. Dinner with Pam and Geoff
• Sunday: Sightseeing around Broome
• Monday 9 – Friday 13 September: Working 7.30am to 4.00pm at client’s house
• Saturday: return flight to Perth (depart 10.00am, arrive 12.30pm).

Noah can claim:

• his return airfare to Broome and taxi to his hotel and from hotel to airport
• accommodation in Broome for all nights (as the weekend in between was incidental and the primary purpose of travel was for business)
• costs of undertaking his work in Broome (such as hire of tools)
• meals and incidental costs of his work.

Noah cannot claim his private expenses, including:

• the cost of the sightseeing he does on the weekend
• the dinner he has with friends.

Companies and trusts

If your business is a company or a trust, we highly recommend you use a travel diary as it will help you work out the proportion of the travel that was for private purposes.

• PAYG withholding implications of Travel allowances
• Fringe benefits tax (FBT)

Records for business travel expenses

Keep records for five years to substantiate your business travel expenses, including:

• tax invoices
• boarding passes
• travel diaries
• details of how you worked out the private portion of expenses.

If you’re a sole trader with simple tax affairs, you can use the myDeductions tool in the ATO app to record your business-related expenses.

• Record keeping for business
• myDeductions

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