Travelling to new clients can be exciting but exhausting, especially if the project spans an extended period of time. So, we understand if renting an apartment nearby sounds much more appealing than travelling back and forth from Newcastle to London every week, for example. But is this classed as a business expense, or does it have to come out of your pocket? You may be able to claim – it all depends! Let’s discuss.

What is a business expense?

Having your own business comes with inevitable costs which need paying to keep things in working order. Thankfully, many of these costs are classed as ‘allowable expenses’ which means you can deduct them from your business income, and then pay tax on the profits left over.

For example, a self-employed painter will be able to deduct the cost of tools they need to do their job – like paint, paint brushes, and ladders. The same with a freelance writer purchasing a laptop and editing software they only use for work. As long as the cost relates to something ‘wholly and exclusively’ for your business, it should be an allowable expense.

So, if you purchase Netflix to watch when you get home from work for instance – this isn’t tax deductible because it’s a personal expense. But say you need it for research purposes, because you’re an actor, or you exclusively use it in your waiting room for your clients, it could well be tax deductible.

If you work from home you may also be able to claim some of your home office costs against your tax bill, and if you travel to different clients’ workplaces, you may also be able to claim travel costs.

Can I claim travel expenses going back and forth to my client’s site?

For contractors and self-employed individuals who move around a lot – this can be complicated. First off, yes you can claim for travel expenses, as long as they aren’t commuting costs. So, things like travelling to client meetings and training events – all fine. Travelling to your own office though, is not an expense.

The line is obviously blurred when you spend a significant amount of time at one client’s location. The good news is that HMRC allow contractors to claim travel expenses from their home to a client’s site or premises if it’s a ‘temporary workplace’.

This falls under the 24-month rule, so you can only claim travel expenses to and from your client’s premises as long as you expect to be working there for 24 months or less.

Depending on how far away you’re travelling, you may find it easier to book a bed and breakfast. This can usually be claimed as an allowable expense. If you’re working away for months at a time, you may want to consider longer-term accommodation – which we discuss next.

Would renting an apartment be classed as a legitimate business expense?

It depends on your circumstances. For example, for it to be classed as an allowable expense you need to:

• Keep your permanent residence, and have no plans to relocate on a permanent basis
• Demonstrate that it’s financially beneficial. For example, if an annual train ticket is more expensive than the annual cost of rent, it proves it’s the better financial option. The same applies if you compare rent versus the cost of mileage.
• Ensure it’s strictly for business. If you have friends and family staying at the property this becomes a Benefit in Kind, so you’ll pay tax on the value of the benefit you receive. If you have a limited company you need to ensure the rental agreement is in your limited company’s name, and the rent itself is paid through your business bank account.

It’s all decided on a case-by-case basis, but this outlines what HMRC deems acceptable.

How do I report this on my tax return?

You’ll record this expense exactly as you would any other allowable business expense. For example, if you’re a sole trader, it’ll go on your Self Assessment, and if you’re a limited company director it’ll go on your Company Tax Return. This is also the same for contractors who operate as a limited company!

Is this the same if my employee needs to rent an apartment for work?

Yes! Whether you or another employee need to rent accommodation, the same procedure applies. The rental agreement must be in your company name, and the rent itself should come out of your business bank account.

Are there any restrictions to the type of property I can rent?

Yes, the apartment in which you’re renting must be deemed by HMRC as reasonable. Ideally it should be to the same standard, or less, as your permanent residence. So, any penthouse suites that overlook the London Eye are likely to get a big no-no from HMRC.

 
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