James Bailey highlights potential difficulties faced by the self-employed when travelling from home on business.
With HMRC challenging travelling expenses for the self-employed, and no clear legislative guidance, business travel can lead to expensive arguments with HMRC.
There is much legislation and published guidance on employee’s travelling expenses, and the Office of Tax Simplification has just announced a review of the legislation so that it ”reflects working patterns in the 21st century”.
By contrast, self-employed traders have one vague piece of legislation (ITTOIA 2005, s 34, which prohibits ”expenses not incurred wholly and exclusively for the purposes of the trade”), and one section which is about food and drink, but is frequently misinterpreted by HMRC who read ITTOIA 2005, s 57A as if it is in fact about travel.
In the absence of statutes, there is case law (decisions by the courts in specific cases), which is inconsistent and contradictory and if it reflects the working patterns of any period, reflects those of the early 20th century.
Home to work
In a case where there is a clearly defined base for the business, such as an office, or a used car lot, then it is clear that travel from home to the business base is not deductible, on the principle that it arises from where you choose to live and is not “wholly and exclusively” for the business.
There are three exceptions to this general rule, all of them much misunderstood:
- If your business is genuinely based at home, then travel from there to another business location is allowable (think of an old fashioned doctor with a surgery at home, who goes out to visit a patient). Merely keeping the business books at home and using the home address for business correspondence will not make it the business base;
- If you start a journey from home to go to a business location you do not visit on a regular basis, this will be allowable. For example, a car dealer is phoned at home by an irate customer, and he then drives to the customer’s home to see what is wrong with the car he sold him that morning; and
- If your business consists of a series of short-term engagements at different locations, then the travel to them may be allowable. This is based on the case of Horton v Young (CA 1971, 47 TC 60), which involved a bricklayer who travelled from home (where he kept his bricklaying kit, and from near which he picked up his team of brickies on the way to a job) to a number of different sites where he typically worked for about three weeks before moving to a different site. Another example would be a travelling salesman. HMRC hate the Horton case and always try to explain why it does not apply to the case they are considering.
Dual purpose
If your journey has a private purpose as well as a business one, then it is not ”wholly and exclusively” business, and unless you can identify a specific proportion that is business, the cost is not allowed.
A landlord drives into town to shop at the supermarket, and takes the opportunity to visit one of his properties to see how the builders are getting on – no deduction. An architect travels to Scotland to meet a client and view a site, and then takes a few days’ holiday walking in the highlands. He will need to apportion the hotel costs between days seeing the client and days on holiday, and any miles driven to get to the mountains will not be allowed.
Practical Tip:
Unless your business is clearly based at home, or consists of travelling to a number of short-term locations, be careful about the costs of travel from your home. Beware also of mixing business with pleasure!
