The Quick Overview
When traveling abroad for work, employees can choose between claiming World-Wide Subsistence Rates (WWSR) or actual costs for their expenses.
WWSR offers a fixed daily allowance, simplifying the claims process but potentially leading to underpayment.
Actual costs provide more accurate reimbursement but require detailed record-keeping.
HMRC has specific criteria for determining whether a workplace is temporary and eligible for expense claims, including the 24-month rule, fixed-term appointment rule, and area/depot rules.
Contractors should carefully evaluate the WWSR rates against actual costs to determine the most advantageous option for their individual circumstances.
The Detail
When going abroad for work, employees think about the chance of seeing a new country, a new city, different cultures and also the piles of receipts they need to keep in order to claim back their expenses. Since the introduction of the World-Wide Subsistence Rates and the new rules that started in April 2019, just checking that the employees travel qualifies is enough.
However, does the World-Wide subsistence rates leave you short changed? We look at the alternative option to claim actual costs which may leave you better off.
HMRC World-Wide Subsistence Rates
HMRC has established rates that employees can claim for work-related travel expenses. These rates cover accommodation, meals, drinks, and travel to the workplace. Rates vary by city, and if a city isn't listed, the "Elsewhere" rate applies.
A link to the updated rates can be found here.
HMRC defines a temporary workplace as a location where an employee works for a limited time to accomplish a specific task. Regular attendance doesn't automatically disqualify a workplace from being considered temporary if the work is of limited duration and for a specific purpose.
The rates only apply to employees who are working in a temporary work place. For HMRC a temporary workplace is one which is "where an employee goes there only to perform a task of limited duration or for a temporary purpose". Regular attendance doesn't automatically disqualify a workplace from being considered temporary if the work is of limited duration and for a temporary purpose.
HMRC has established four indicators that can classify a workplace as permanent, preventing expense deductions:
The 24 Month Rule (EIM 32080)
The Fixed Term Appointment Rule (EIM 32125)
The Depot and Bases Rule (EIM 32160)
The Area Rule (EIM 32190)
Each contractors circumstances can differ, but most contractors will fall under the first two rules.
Limited Duration – the 24 month and 40% rule
If the place of work you are working at is longer than 24 continuous months then it is considered a permanent workplace and expenses, subsistence and travel can no longer be claimed.
There is, however, an extra part to this rule, the work has to be performed to a significant extent at that place”. According to HMRC, this is 40% or more of a contractor’s time.
Breaking this down, should a contractor spend more than 40% of their working time over 24 months then they can no longer claim their expenses for working abroad. Anything up to 24 months can be be claimed.
HOWEVER, HMRC add an extra clause. Should the contractor know at the beginning of their contract that the duration would be longer than 24 months then nothing can be claimed for the whole period.
There is a caveat for this. Should the contractor only find out during his period of contractor, that it will extend beyond 24 months, then the time up to 24 months can be claimed. Therefore, should they sign a 20 month contract and then an additional 8 months are added, then the first 24 months can be claimed, but not beyond.
The fixed term appointment rule
This rule prohibits all expense and relief claims, regardless of contract length. If the contract for services aligns with the duration of the employment, no expenses can be claimed. For instance, a 12-month contract and a 12-month limited company would result in no expense claims.
HMRC states that if a period of continuous work "can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment" that client's site is not treated as a temporary workplace. If the continuous work is anticipated to last for this duration, the 24-month rule is inapplicable. HMRC uses 80% as a benchmark for "almost all."
This rule is crucial for contractors to understand, as it can significantly impact their ability to claim travel and subsistence expenses."
Area and depot and bases rules
These rules are used for employees who are mainly allocated work from a particular depot or have work that only applies to a particular area. In these cases, whether the employee works from home or not, they would be unable to claim expenses from the work allocated from the depot or in the area.
Do The Word-Wide Subsistence Rates Pay Their Way
The Word-Wide Subsistence rates provide a very attractive perk in that you don't need to keep receipts. However, the amount of tax relief they provide may not always leave you better off. Rates are provided based on the number of hours you spend in the country and the different types of expenses that you may claim for. For example, New York allows you to claim an inclusive rate for 5 hours stay of $31. If you stayed overnight that you can claim the residual value of $102.50 plus the room rate of $216.
However, the rates do not always cover the cost you may incur. Taking our overnight stay in New York above. The average hotel rate from 2013 to 2018 in New York during the month of October was in for all years above the $216 which the World-Wide Subsistence rate covers (average prices ranged from $269 to $442). Having this shortfall for each night of your stay, could leave you quite a bit out of pocket.
Average New York Hotel price per night - as high as $442
World-Wide Subsistence Rate for Hotel - $216 (2019)
Maximizing Your Deductible Amount
The good news is that there are alternatives to the World-Wide Subsistence Rates. You can claim the actual costs of your overnight accommodation and use the other rates for food and travel during your stay. This can help you claim a larger deduction against your tax bills.
Whilst you can claim actual costs for your trips, HMRC won't let you claim for staying in the Ritz! Claims still have to be reasonable.
You will also have to keep your receipts if you are claiming the actual costs. Given the number of apps available nowadays to take pictures of your receipts and to keep a track of your expenses, the headache of keeping a wallet full of receipts is much more less than ever before. We have accounts set up with companies that provide this service which can be used should you find this easier.
Don't Forget The Extras
You can also claim expenses for incidental expenses, for example, WiFi.
Expenses can also be claimed if you are staying at friends (10% of the World-Wide Rates) or if your client is paying for your expenses in service accommodation, you can also claim
Overall, contractors have an alternative option to the Word-Wide Subsistence Rates method in the actual cost option. Depending on your trip, accommodation length of trip, you could end up losing out on how much you are claiming if you don't do the correct homework.
We would be happy to discuss these options with you.
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