HMRC House Rules – Do you know the basics?
Certain ‘house rules’ underpin many of the decisions made by HMRC.
Being aware of these can help you understand if and why an expense can be claimed:
1. The Allowable Expenses
All expenses must be incurred ‘wholly, exclusively and necessarily’ in the performance of your business duties.
For example, you buy a chair to sit on at work – without this you would have to stand.
In addition to this rule, there are certain conditions to be aware of when claiming expenses through the company or as an individual:
Through the company: Where something serves a dual purpose (like a company phone also used to make personal calls), you need to pay tax on the portion used for non-business activities. The company records this as a ‘benefit in kind’ on a P11D form.
As a director or employee: In some cases, you may need to draw up a contractual agreement with your company or client. For example, if you claim expenses when working from home, your contract should state that you are required to work at home, rather than at a client’s office.
2. The Business Travel Rules
HMRC states that ‘business travel’ must be either:
To a temporary workplace eg. travelling to a client’s office or work site; or Between business activities eg. travelling from one business meeting to another
Your daily commute between home and your main office is not allowable for tax relief.
In some cases, ‘triangular travel’ (where you travel via a temporary workplace) may be allowable – ask our team to tell you more.
3. The Temporary Workplace Rule
To be eligible for expense claims, a ‘temporary workplace’ is somewhere where:
1. You carry out a task that lasts for a short period of time or is for a temporary purpose
2. You spend less than 24 months working there
Five tips to make claiming your expenses easier
1. Keep all receipts and invoices – Wherever you are in the world, proof of purchase is crucial when it comes to completing your accounts and making sure you don’t pay too much tax.
2. Use the company debit or credit card for business expenses – This reduces the time spent claiming for out of pocket expenses. You’ll also avoid paying unnecessary NICs and PAYE tax.
3. Submit monthly expense and mileage claims – The company can then reimburse you on a regular basis and you won’t waste time creating back-dated expense forms.
4. Address your supplier invoices to the company – All expenses paid directly by the company should always be made out in the company’s name. Always request a VAT receipt/invoice from the supplier so that the company can reclaim the tax.
5. As a director, take steps to ensure that the company operates outside IR35 – IR35 affects the amount of tax you pay when providing contract work through your limited company. To help optimise your company’s tax efficiency, use our Guide to Operating Outside IR35 which is also featured on our A-Z Guide to Expenses.
Speak with the Experts
For expert advice on HMRC, speak to our team on 01825 748308