Most businesses incur travel expenses and these can be significant. It is therefore important that you deduct allowable travel expenses when computing your profits.
The rules relating to travel expenses are complicated and the Government has announced that they are going to review the rules.
In the case of a sole trader or partnership, if the business is based away from home, the costs of travelling to the business base are not deductible. Costs of commuting are not allowable as these are incurred to put the person in a position to work rather than being incurred in running the business. However, if the business is based at home the costs of travel from home to the premises of a customer or supplier are deductible.
Where the proprietor or partner uses his or her own car or van for work, the deduction may be based on a mileage rate (see Tip 35). If public transport is used, the deduction is the actual cost incurred. There is no requirement to take the cheapest mode of transport.
Where the business is run as a company, all travel costs met by the company are deductible in computing the company’s profits. However, if the company meets the costs of private travel of an employee or director (such as home-to-work travel costs) this may give rise to a benefit in kind tax charge on the recipient and a Class 1A NIC liability on the company.
It should be noted that from 6 April 2016 tax relief will not be given for home-to-work travel where a worker’s services are provided to an engager through an employment intermediary (such as a personal service company or an umbrella company) and the worker is subject to the direction, supervision or control of the engager.
David runs a small business as a sole trader from a unit on a nearby business estate.
He drives to work each day. The costs of this journey cannot be deducted as an expense of the business.
He has regular meetings with suppliers. He drives from the office to the station and takes a train to the meeting, returning by train and car back to the office at the end of the day. The associated travel costs are deductible in computing the taxable profits of his business.