If you’re thinking of taking up a job offer overseas, or you’re already contracting abroad, one potentially confusing aspect of record-keeping relates to expenses claims.
The expense rules can become trickier to navigate when you’re out of the country as the value of expenses incurred will often be much higher, making understanding the rules and applying them correctly even more important.
Here, contractor specialists Intouch Accounting, have provided us with an excellent overview of how expenses work when you’re out of the country, and how to make sure your trips don’t cost more than they have to.
You should try to keep on top of your expense recording to ensure that your limited company can enjoy tax relief on all allowable costs that have been incurred in the course of providing your contract services.
Temporary workplace rules still apply
The 24 month/40% rule still applies if you’re contracting overseas.
So under the general travel rules should you travel to the same workplace for 24+ months for more than 40% of your working time, you can no longer class that location as ‘temporary’ or claim travel and subsistence expenses.
The 40% rule – If you spend less than 40% of your working time at any given location (in the UK, or anywhere in the world) it will most likely be classed as a temporary workplace for as long as you work there. This is even more likely if there’s no fixed pattern to when you work there.
The 24-month rule – Say you have a big contract for a particular client which means you’ll be spending more than 40% of your working time at their place of work, you’d be caught by the 24-month rule. So you could only continue to claim expenses as long as you do not travel to that location for more than 24 months.
Do special rules apply to overseas contractors?
Alongside the general rules surrounding claiming expenses, there are a couple of special rules which apply to UK contractors who perform part or all of their duties abroad:
Rule #1: You can deduct the travel expenses for your spouse/partner and children if you’re abroad for 60 days or more. You’re able to claim this for two return trips per year, although you are unable to deduct any accommodation or subsistence expenses for them.
Rule #2: Your accommodation and subsistence expenses are also tax-deductible when borne or reimbursed by the company.
A worked example
Ted is a limited company contractor who has an 8-month contract based in France, where he’ll be performing all of his duties abroad:
- Ted’s travel to and from France is tax-deductible, as France is a temporary place of work
- Ted’s wife travels to France to see Ted a few times during the 8-month period. Travel costs for two of her trips are deductible
- Accommodation and subsistence costs for Ted are deductible as they are a necessary part of his travel
- Whilst Ted’s wife can claim for the travels costs for two of her trips to visit Ted, she cannot claim accommodation or subsistence costs for those trips
What can you claim for when working abroad?
Just as if you were contracting in the UK, anything that is “wholly and exclusively” for business purposes can be claimed for.
The same rules with receipts apply, you’ll need to keep hold of all of them and convert the total value to GBP before recording those expenses in the UK.
Benchmark rates if you’re contracting abroad
To understand how much you’re able to claim, HMRC has released a list of benchmark scale rates (standard amounts that can be provided and claimed for). Employers are able to use this list to reimburse accommodation and subsistence expenses incurred by employees who have to travel abroad.
A majority of countries have benchmark rates exist larger cities and ‘elsewhere’ rates for other locations.
One of the prerequisites for a qualifying expense is that the location must be a temporary workplace. You must still retain proof of travel (as evidence that you’ve travelled abroad) and I strongly advise Intouch clients to retain all receipts, as it’s good practice to do so.
Mixing business and pleasure – the rules
Whilst away you may want to indulge in some sightseeing at the end of your contract, to make the most of the time in your new location – and why not! Whilst this is perfectly ok, any expenses incurred once a contract is complete can only be claimed for if they are again “wholly and exclusively” for your work.
HMRC will approve legitimate business expenses when there is an obvious purpose motivating the expense, and no other obvious purposes. HMRC will (and do) challenge expenses when they have reason to believe an expense has a dual purpose, so be careful.
HMRC would be unlikely to dispute a claim if the primary and obvious purpose of an expense incurred was to visit a client’s site, so the contractor should be able to include a bit of tourism in their spare time without the threat of HMRC looking into their business affairs. So long as the contractor maintained the travel was for business, and the trip to the Eiffel Tower was incidental, the trip would probably be allowed.
It’s important to remember that should you decide to tag a week of your annual leave onto the end of a contract, HMRC will only allow tax relief for half of any business costs incurred. The same is said for anyone who decides to join you, should a partner decide to join you in Paris make sure to keep their travel and accommodation costs completely separate, to ensure you’re still able to claim for the business elements of your trip.