Dear Contractor Doctor
I’m an IT contractor and I currently work on a contract that takes me away from home. I have rented an apartment near to where my client I located that enables me to minimise my expenses by walking to work. I have also started with a new umbrella company for this contract.
There has been no issue with claiming the accommodation expenses of the rent. However, when I recently submitted my expenses claim that included a subsistence claim for lunch, my umbrella company told me that their policy was not to allow subsistence if a contractor can walk to work. It is a 15 minute walk from my apartment to the client’s site and I have half an hour for lunch. I could theoretically make it to my accommodation for lunch, but would not have any time to eat it.
Can I claim lunch expenses even if I walk to work?
Contractor Doctor says:
There are no HMRC rules that prevent a contractor from claiming subsistence expenses just because they walk to work. Expenses generally have to be wholly, necessarily and exclusively for business purposes, but there can be exceptions such as tagging a holiday onto a business trip.
The costs of regular commuting to a permanent place of work and subsistence expenses, such as buying a sandwich for lunch, cannot be claimed as a legitimate business expense. So, employees travelling to work at their permanent place of work each day cannot claim lunch expenses.
However, it may be a simple misunderstanding of HMRC’s travel and subsistence rules, which are quite complex and can be counter-intuitive at times, on the part of the umbrella company. Contractors encountering such responses from their service provider should challenge them to identify the specific HMRC rule the umbrella company thinks applies.
Contractors working on site are subject to temporary workplace rules
For most umbrella company contractors, their service provider’s trading address is technically their permanent place of work. As a result, when working on clients’ sites the temporary workplace rules kick in.
These allow contractors to claim travel and subsistence when working at a temporary workplace. It is also important that contractors, both limited company and umbrella company contractors, use the temporary workplace and subsistence rules that apply to employees, and not the self-employed.
That’s because contractors are typically employed by their limited company, and umbrella company contractors using a compliant service provider will always have a contract of employment. This is a distinction that is often lost on high street accountants.
What does HMRC’s guidance about a temporary workplace say?
HMRC’s rules on temporary workplaces and travel and subsistence expenses can be found in the taxman’s Employment Income Manual. This includes comprehensive guidance mainly targeting tax and HR professionals, but it is still accessible for contractors.
EIM 32075 provides a definition of a temporary workplace. Contractors should also consider the 24 month rule (EIM 32080), the fixed term appointment rule (EIM 32125), the depot and bases rule (EIM 32160) and the area rule (EIM 32190).
Richard’s workplace is clearly temporary as long as his contract is does not become extended to 24 months or more. As a result, he can legitimately claim subsistence costs. If he chose to take a bus or drive instead of walking, he could also claim to bus ticket or mileage costs.
Does living close to work change HMRC’s subsistence rules?
HMRC’ EIM 31800 provides guidance on travel and subsistence expenses. In EIM 31815, HMRC explains that it is allowable for Richard to claim for the cost of a sandwich if bought when working at a temporary workplace.
HMRC also confirms in EIM 31837 that there is a cap or limit to what can be spent on lunch, except in the case of some specific occupations. It does warn, however, that particularly lavish subsistence costs could cross the line and be considered as a ‘reward’, rather than subsistence, and so no tax relief is permitted.
Editor’s note: Richard shared the Contractor Doctor’s answer with his umbrella company. As a result, his expenses have been accepted and the services provider has changed its guidance and processes as a result.