If you’re considering taking a job offer overseas or are already working abroad, one potentially confusing aspect of record-keeping relates to expense claims.
The rules don’t change just because you’re outside the UK, but the costs involved are usually higher, so it’s essential to apply them correctly.
Keeping accurate records is key. If your limited company can demonstrate that an expense was incurred wholly and exclusively for business, it can usually be claimed for tax relief. The primary test remains whether the workplace is temporary.
Temporary workplace rules abroad
The same temporary workplace rules apply whether you are working in the UK or overseas:
- The 40% rule – If you spend less than 40% of your working time at a site, it is usually treated as temporary. This is even more likely if your visits are irregular.
- The 24-month rule – If you spend more than 40% of your time at a single workplace, expenses can only be claimed until you have been there for 24 months. After that, the site becomes permanent for tax purposes, and travel and subsistence are no longer deductible.
Special rules for contractors overseas
Alongside the general rules, HMRC provides a couple of specific concessions for employees and directors working abroad:
- If you are overseas for at least 60 consecutive days, the cost of up to two return trips per tax year for your spouse, partner, or children may be claimed. This covers travel only, not accommodation or meals.
- Accommodation and subsistence costs you incur while working abroad are allowable, provided the workplace is temporary and the costs are paid or reimbursed by the company.
An example
Sarah, a contractor working through her own limited company, accepts a nine-month contract in Germany:
- Her flights to and from Germany are deductible because the client site is a temporary workplace.
- Her husband visits twice during the assignment. The cost of his flights can be claimed, but not his hotel or meals.
- Sarah’s own accommodation and subsistence costs are allowable, as they are necessary for her work.
What you can claim
As in the UK, only expenses incurred wholly and exclusively for the purpose of your contract can be claimed.
All receipts should be retained and the amounts converted into pounds sterling before being entered into your company accounts.
HMRC benchmark rates
Instead of claiming actual receipts for food and incidentals, you can use HMRC’s published worldwide subsistence benchmark rates. These set daily allowances for accommodation and meals in major cities and other locations worldwide.
You must still keep evidence of travel, and, in practice, it is good discipline to keep receipts as well.
Mixing business and leisure
It’s common to want to extend a trip with some sightseeing or holiday time. This is fine, but tax relief only applies to the business element of the travel. HMRC will accept some incidental personal activity if the primary reason for travel is work, but costs that are clearly private must be excluded.
For example, if the return flight cost is the same whether you stay on a few extra days or not, the flight can still be claimed. However, any additional nights in a hotel purely for leisure cannot.
If friends or family join you, their costs should be kept entirely separate from your company’s expenses.
As always, the rule of thumb is to ensure that the primary purpose of the expenditure is business. If that test is met, HMRC is unlikely to challenge the claim.
Always ask your accountant if you have any questions about expenses.