As a contractor or consultant, you may be working a fair distance away from home. The working away could be a requirement of your current contract. Therefore, you may be planning on renting a house or flat that is near your worksite. Depending on the length of your engagement, you may need to rent the property for a period of time. Therefore, if you do rent a place whilst you conduct your business away from home, can you claim for the costs as a business expense?
Where you are working, you have family and friends who live there. If this is the case, you could stay with them. This assumes of course that your family member or friend are happy to put you up for a few days. However, this may not be an option. In this case, you will need to look into an alternative such as:
Therefore, let’s take a look into this. We can find out if your costs while staying away are allowable expenses.
We have a separate guide that covers relocation costs. This covers the rules when you are actually moving your primary place of residence.
If you are thinking about contracting abroad, there are also certain things here to consider too.
Performing work away from home
As a UK contractor, you may, at times, need to travel for your contract work. As part of this, you will incur travel expenses. Depending on your work, on some occasions, the journey could be quite a commute. If this is the case, it may prove to be more practical to stay over away overnight. When this is so, you will need to stay near your worksite, while you work away from home.
It could be the case that you are working away full time during the week. Therefore, a journey there and back each day may prove to be too much in terms of time. This could be so, especially given how busy the motorways can get during the working week. Therefore, you may prefer to stay closer to your worksite, until the working week comes to a close.
Let us now consider, if you able to claim for the cost of renting a house or flat near to your contract site. You might consider doing this if you have a fixed term of work for say 6 months or more. If you are working month to month and you are not guaranteed to be at the work location for a guaranteed period of time, staying in a hotel or B&B would be the better option here.
Claiming for temporary accommodation
When you are working away and the distance is too far to be travelling there and back each day, you can claim for your accommodation costs. Besides hotel or B&B costs, you could also claim for renting a property while you work away. In addition, you can also claim for the utility costs for the house or flat. Furthermore, you can also claim for the food costs. These eating out or eating at the property where you are staying.
When you claim for the property rental, utility bills and food, these are tax-deductible. Therefore, your business will save Corporation Tax on these costs. The claims will, however, be dependent on you meeting certain tests.
Based upon the type of work that you do, you may also be able to claim for your business clothing. However, there are also certain rules here on what you can claim.
Work away from home -what to consider
There are some factors that should be taken into account, when you consider if you can claim for your temporary work accommodation as an expense:
- First of all, the rental property that you are staying in, must not be your permanent place of residence.
- Secondly, you must continue to have your main residence whilst claiming for the temporary work accommodation.
- The worksite and property that you are staying in should not be close to your permanent place of residence.
If you meet the above criteria, you can claim for the cost of a rental property near to your new worksite.
Please note, HM Revenue & Customs (HMRC) could also potentially challenge the claim at some point. If they did this, you must be able to show that it is more financially beneficial to stay in temporary digs near to your work site.
Comparing the costs
Your company may, at some point, undergo an HMRC enquiry. As part of this, you would need to try and show that the temporary accommodation expenses are necessary. You could, therefore, compare the monthly cost of the rent and utility bills against the cost of the mileage to get you to the work site. In addition, if you do drive to the temporary worksite, you can claim for business mileage expenses, under HMRC’s approved rates.
The available rates for business mileage expenses, when using your own vehicle to get to your work site are:
- 45 pence per mile for the first 10,000 miles travelled in the tax year.
- 25 pence for each mile after that.
On the other hand, you could compare the monthly rental costs against the cost of monthly rail costs to get you to the site. The total cost of the property rental and utility expenses should come to less than the mileage or rail costs. If it does, you would be able to demonstrate that this is more financially beneficial.
It is also important to be able to show that there is no personal benefit. By this we mean no personal benefit derived from renting the property for your contract. Therefore, you would need to be able to demonstrate that you are renting the temporary accommodation purely for work reasons.
Furthermore, you would not be able to have friends or family staying there. If you did, personal usage/benefit would require reporting on form P11D.
Renting a property for work reasons
When you work away from home and are renting a property, you should first make sure it is fit for human habitation. Secondly, if you are to claim the cost through your business, you must get the tenancy agreement in your company’s name. An assured shorthold tenancy is the most common type of tenancy agreement, if you rent from a private landlord or letting agent.
The written agreement is a contract between the landlord and your company. Therefore, if you are going to claim for this as an expense, it is important that the rental agreement is with your company rather than you personally. A tenancy deposit will also usually be required upfront. This will repayable in full after the term of the agreement. This is assuming there are no damages to the property.
In the UK, there is now in place a deposit protection scheme. Under this scheme the landlord needs to keep your deposit in a separate bank account. Under the tenancy deposit scheme, this will be refundable to you in the future when you eventually leave the property.
With regards to the associated utility costs, you should try and get these bills in your company’s name. When you do this, it will demonstrate that the costs are for your company, rather than you.
It would also be advisable to ensure that your will company (rather than you personally) will pay:
- Pay the utility companies for their services.
Therefore, you could set the rent and utility payments upon your company’s bank account, rather than your own personal bank account.
If you can demonstrate and do all of the above, this will help back up your claim that these are legitimate business expenses via your company.
Claiming for food costs when you work away
In terms of food, you will be able to claim your meals as subsistence expenses while you work away. This is as long as these are not `excessive.’
There are also HMRC standard meal allowances that are available. However, during your time away, you might usually be eating at your rented property and if you do, you can claim for your shopping bills.
As part of claiming for your shopping bills, you should ensure that you do not include personal items on your receipts from the local supermarket. Therefore, it is important to be careful here, otherwise you will need to separate out personal items when making the claims for shopping bills through your company.
There is also a difference between how business meals and meals that are of an entertaining type nature are treated for tax purposes. In addition, all of your travelling type costs are subject to you not falling foul of the two-year rule.
Furthermore, when you stay away from home overnight for work reasons you can also claim for Personal Incidental Expenses (PIEs). These are an allowable expense when you stay away overnight.
Many contractors, in all sorts of industries, will stay away from home overnight for work reasons during the week.
Many of those who travel a fair distance, will also prefer to be renting a house or flat on contract rather than commuting. When you compare the cost of this to staying in a hotel or B&B guesthouse, the latter can cost much more.
If you follow the guidelines above, you can claim for the temporary accommodation costs as travel expenses through your company. In turn, these will be tax-deductible expenses for your business. Therefore, your company will save 19% of these costs against its annual Corporation Tax bill.
Finally, when you can claim for temporary accommodation costs through your company, this means that your business will pick up the cost. To sum up, this is better than you picking this up personally out of your already taxed personal income.
Link to Contractor Advice UK group on