Contractors' Questions: Are expenses due and do I report them on P11D?

Contractor’s Question: I’ve completed a contract where I had to travel from Cambridge to Manchester, staying locally during the week as a daily commute was not practical.

The expenses, such as staying in a cheap hotel and a 2nd class rail ticket, were all paid directly from my company bank account. The expenses were Mon-Thursday and exclude meals for dinner or lunch. Any daily incidentals covered by the £5 allowance were paid personally.

So what can be claimed via the company accounts as expenses, and what are my PAYE P11D reporting requirements? I’m a director earning under £12,000 on an outside IR35 contract.

Expert’ s Answer: Corporation tax relief will be available for all travel and subsistence claims to a temporary workplace (less than 24 months), providing the journey is for the trading activity.

You will need to consider any impact around Supervision, Direction or Control (SDC). For personal service companies, if you are outside of IR35 there will be no changes. But if you are caught by IR35, travel and subsistence expenses can’t be claimed for Corporation Tax relief. 

The company can pay travel costs including mileage for the use of an employee’s private car, road tolls; parking, taxi fares, car hire, public transport, flights, accommodation and subsistence. There is no limit on the amount spent provided that there is no element of entertaining included.

The normal place of work for most personal service companies is the home of the director unless the company has commercial premises. Therefore travelling to a client site is usually to a temporary workplace. However, a workplace ceases to be temporary when it is likely to be the same for more than 24 months. You need to be cautious where two separate client site locations are in a similar geographical area one after the other, you may need to combine both periods when considering the 24-month rule.

The trigger for a change from a temporary to a permanent workplace occurs when it can be first predicted to exceed the 24-month limit.

Regarding your specific claims, you can claim your commute to and from the train station, train tickets, hotels and meals. You would have needed to claim the receipted amount for meals, if you did not have benchmark scale rates agreed with HMRC. Plus, you can claim for overnight incidental allowances of £5 per night, while staying away from home in the UK.

As for the P11D requirements, expenses incurred by the company and paid directly from your business bank account do not need to be reported. The P11D reports taxable benefits and it used to report reimbursed expenses to employees however this is no longer required. The overnight incidental allowance is currently exempt, providing not more than £5 per night for overnight stays in the UK; £10 per night for overnight stays overseas.

Lastly, regarding your status, IR35 would not impact the reporting requirements for your P11D, any allowable travel and subsistence claims would be used within the deemed salary calculation at the end of the tax year. But this would not apply if you are outside of IR35, which you say you are.

The expert was Chris Deakin, Operations Manager at contractor accountancy firm Intouch Accounting.