Subsistence has always been a very grey area where taxation is concerned. Knowing in what circumstances a claim for subsistence is acceptable, and then knowing how much is allowable, can feel like a bit of a minefield. This article aims to shed some light on the subject and guide small business owners on the right path.
What is subsistence?
In order to understand the rules regarding subsistence, I feel it important to make clear what subsistence is in the eyes of HM Revenue & Customs (HMRC).
The Oxford dictionary defines subsistence as “the action or fact of maintaining or supporting oneself, especially at a minimum level.” HMRC, taking the very literal meaning of this word, use it to describe “food and drink.”
Regular work pattern
Claims for subsistence can only be made where an employee is working outside of their regular working pattern for a prolonged period of time on behalf of the business, and hence requires additional food or drink that they would not have normally needed.
HMRC Benchmark Rates
Employers have the option to fully reimburse employees for their subsistence costs whilst travelling for business, or alternatively they could adopt the HMRC benchmark rates for reimbursement. The benchmark rates are limited to three meal rates in any 24 hour period.
Covered under HMRC guidance EIM05231, the current rates are as follows:
One meal (5 hour) rate
Two meal (10 hour) rate
Late evening meal rate
1) Breakfast rate
The rate may be paid where an employee leaves home earlier than usual and before 6:00 am and incurs a cost on breakfast taken away from his home after the qualifying journey has started. If an employee usually leaves before 6:00 am the breakfast rate does not apply.
2) One meal (5 hour) rate
The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.
3) Two meal (10 hour) rate
The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or meals.
4) Late evening meal rate
The rate may be paid where the employee has to work later than usual, finishes work after 8:00 pm having worked his normal day and has to buy a meal before the qualifying journey ends which he would usually have at home.
If you choose to use the benchmark rates then you must apply to HMRC via Form P11Dx before using them.
HMRC do not currently provide set rates of subsistence costs that are allowable for tax purposes, and instead adopt a reasonable costs approach. In the event of an inspection by HMRC each employer should be able to justify the level of subsistence paid as being reasonable for their business. The acceptable level of “reasonable cost” may differ greatly from one industry to another, so there is not a “one size fits all” approach here.
Self employed vs director
It is very hard for a self employed person to make a successful claim for subsistence costs, this is because in the eyes of the law they and their business are one in the same. Hence the line between personal and business becomes very blurry and extremely hard to prove.
It is much easier for a director of a limited company to make a successful claim for subsistence costs because they and their company are two completely separate legal entities in the eyes of HMRC. Hence it is much easier to prove that specific tasks were undertaken on behalf of the company, and not for any personal reason.
In essence a successful claim for subsistence costs is a matter of common sense, but the main guidance given by HMRC is:
Outside normal pattern of work
Travel was wholly for business purposes
Costs were reasonable