Sole Trader: Allowable travel expenses

[Phil7979]

I'm curious and would be grateful for advice and guidance as to how other sole traders deal with travel/accommodation costs when it's necessary to travel to a client's location and stay overnight on a regular basis.
For example, depart by train day; stay in hotel overnight for one, two or three nights; attend client's site on one, two three days; return by train at the end of the first, second or third day.
In any of the scenarios above do you invoice the client for the travel/accommodation costs in addition to a daily consultancy rate or do you absorb them into the daily consultancy rate? If yes, how do you handle them in DIYA? If no, again how do you handle them in DIYA and are they allowable by HMRC as taxable expenses?
Also a related Q. has anyone experience/can you advise, please, if, in the circumstances, that such travel took place over the period of a contract of, say, 12/18 months, HMRC would allow such expenses as a taxable business expense or deem them to be non-taxable business travel/accommodation costs similar to the situation where an employee has to bear their own travel costs to travel between their home and their employer's place of work on a regular basis?
I'd be grateful for any feedback.
Moderator, please let me know if I've posted this in the wrong forum and move accordingly. Tx

[antonycc]

In any of the scenarios above do you invoice the client for the travel/accommodation costs in addition to a daily consultancy rate or do you absorb them into the daily consultancy rate?

This would be entirely a contractual decision. Billing the client for travel expenses is cleaner as the day rate is all income however many clients may expect the burden of travel from home to be on the supplier.

If yes, how do you handle them in DIYA?

The travel would be purchase and also a line item on the invoice.

If no

They are purchases but do not change in invoiced value.

...that such travel took place over the period of a contract of, say, 12/18 months...

It comes down to where your normal place of work is. If you are caught by IR35 they may consider the contact to be "deemed employment" in which case travel expenses would be a personal commuting cost not an allowable business expense. The client could still be invoiced but you'd get taxed personally as the travel expenses were a taxable benefit.

The hub of all such queries is: http://www.pcg.org.uk/

Thanks,

Antony.

[Phil7979]

Anthony, Thank you for the full and comprehensive response, which is very helpful.

You mention IR35, which raises another Q. As a sole trader I, I assume like many others, operate from home and travel to client sites to carry out work. Normally I work on short term contracts, and avoid any IR35 issues by varying the number of days on which I attend a client's site and avoid attending on a five-day week basis, as an employee would be expected to do; I usually agree with the client that I shall attend when there is a need and on a minimum number of days, which can vary during a working week. I propose to continue this approach and pattern of working during the 12/18mth contract, which also includes some international travel. My Q. is, do you think this approach is sufficient to keep me out of the clutches of IR35, or do HMRC have the final say on whether or not it does?

Thanks,

Phil

[antonycc]

Hello,

HMRC will decide their position during an investigation but the final say would be ultimately with the courts.

Depending on the value of the contract and risk of increased tax liability and legal costs you can do take some additional steps:

• Use a contract you obtain which is IR35 compliant
• Take out tax investigation insurance
• Keep accurate records detailing the business purpose of any expense
• Minimise expense which may be deemed a personal benefit if a judgement goes against you
• Engage an accountant with IR35 tax investigation experience to act as a business advisor
• Have an IR35 impact assessment prepared and keep a reserve in a high interest account just in case

Again the PCG have can help you access to much of this.

Thanks,

Antony.

[Captain Ham]

Just to add my own opinion on IR35...at the end of the day, you can take steps to mitigate against IR35 as much as you like (and indeed you should), but left to their own devices HMRC are very likely to take a default position that any freelancer they investigate is inside IR35 regardless of what steps you take.

This is where there is no substitute for a good accountant and some tax investigation insurance, as ultimately the only real deterrent to ward off HMRC is to hit them with a bigger stick than they try to hit you with!

If they think you're easy pickings then they'll happily go for you, so you need to be able to puff yourself up so they get bored at the prospect of a drawn-out fight and go and pick on somebody else instead.

[Phil7979]

Antony, Ham,

Thanks for your responses, both of which make good common sense points. I agree with the comments re. HMRC particularly.

Regards,
Phil