Tax Deductions:
Subsistence Expenditure

How to claim a bigger tax deduction

ALMOST EVERY business owner incurs subsistence expenditure such as meals, drinks and other refreshments, yet in practice it can often be one of the most difficult areas of tax to deal with.

Business Proprietors
The greatest area of difficulty tends to arise with business proprietors’ own subsistence costs – the expenses incurred directly by sole traders, business partners and individuals with property rental businesses. The treatment of subsistence costs incurred by company directors or other employees is slightly different.

Claims for proprietors’ own subsistence must usually be based on actual expenditure and ‘round sum’ allowances are not generally available.

The first problem is evidence. Many business owners neglect to obtain receipts for some of their subsistence expenditure. Here, I would make two points. Firstly, in an ideal world, you should really try to get a receipt for every last penny of your business subsistence. It doesn’t necessarily have to be a printed till receipt: I have even resorted to getting a receipt written on a napkin!

Secondly, don’t just give up and not make a claim just because you don’t have a receipt. Reasonable subsistence claims are seldom refused, especially if you make a note of the expenditure at the time – but do try to get receipts in future.

Business Trips
The basic rule is that business proprietors may claim reasonable subsistence costs incurred during a business trip. In essence, a business trip is any trip away from the proprietor’s normal place of business made for business purposes and which does not form part of their normal pattern of travel.

Let’s look at a couple of examples to see what this means in practice.

Example 1
Mike is based in Scotland and has to spend a day in London on business. He has an early morning flight, so he has breakfast at the airport. He grabs a coffee and a danish pastry when he arrives in London. Later, he goes out for lunch in a pub near his customer’s office. He buys another coffee and a piece of cake in the airport on the way home.

All of this expenditure was necessitated by Mike’s business trip and can all be claimed for tax purposes.

If, however, Mike buys himself a takeaway on the way home from the airport that evening, it would not be allowable. If he had dinner in London before catching his flight home though, this would be allowable.

An interesting planning point emerges here. By and large, any meals, snacks or drinks you have while you’re away will be allowable. As soon as you’re back on your own ‘patch’, any further expenditure is purely personal and cannot be claimed.

Example 2
Emma normally works from home but needs to visit one of her customers just a mile away. She buys herself a coffee on the way to her customer’s office and goes for lunch in a local cafe.

Sadly, this expenditure is not allowable. Emma could have made herself a coffee before leaving home and could have returned home for lunch. Her subsistence expenditure cannot be claimed as a business expense because she had a reasonable alternative.

It would have been exactly the same if Emma had her own office premises and her customer’s office was only a mile away from there. Her subsistence costs would still have been a personal expense because one cannot say that her expenditure was any different to that which she might incur during a normal day at her own office.

Mike, on the other hand, flew all the way to London. It would have been ridiculous to expect him to go home to Scotland for lunch, so his subsistence costs were a reasonable business expense.

There is no set rule on how far you must travel before your subsistence costs become allowable. It is a question of whether it would have been reasonable for you to return home, or to the area in which your own business premises are located, before incurring the expense.

You must also actually incur the expenditure during the business trip. In Mike’s case, it would be quite reasonable for him to have dinner in London, which would be allowable, but if he chose to go home first, he could not claim the cost of his dinner in Scotland.

Whilst subsistence expenditure needs to be reasonable, it doesn’t need to be frugal. If you’re in a town with a nice Italian restaurant and a burger bar, there is no requirement for you to take the cheaper option.

Alcohol
Some people assume that all alcohol must be a personal expense and hence not allowable. Not so! Just because something provides an element of personal enjoyment, this does not prevent it from being a business expense. You wouldn’t just assume that desserts weren’t allowable, would you?

You have to drink, so if you choose to drink one or two glasses of beer or wine with a meal instead of water or lemonade, it’s still subsistence expenditure. A single glass of beer or wine in an airport or railway station on your way home would also generally be allowable.

But, any expense you claim must be reasonable. There can come a point when the expense is incurred purely for personal enjoyment and is no longer allowable. A half bottle of wine is usually fine, but a magnum of vintage champagne is probably not.

Similarly, whilst drinks taken with a meal are usually considered reasonable, further alcoholic drinks after an evening meal would generally be regarded as a personal cost which cannot be claimed.

Business Meetings and Entertaining
So far, we’ve talked about personal subsistence. Once you’re with a customer or business contact, the situation changes.

For business meetings, we must again consider what is reasonable. A cup of tea or coffee whilst you discuss some business would usually be acceptable. Beyond that, we’re into the realm of business entertaining and that’s another story (which we will cover in a future article).

In the meantime, if you’re reading this in an airport or railway station on your way home from a business trip, why not have a drink on Alistair Darling?