Business Expenses – Renting a Flat
Can I claim the cost of Renting a Flat as one of my business expenses?
The costs of accommodation incurred by employees whilst working at a temporary workplace are relieved for tax under the travel and subsistence rules.
HMRC’s guidance, booklet 490 – ‘Employee Travel’, section 5.4, confirms that:
“Travel expenses include both the actual costs of travel together with any subsistence expenditure and other associated costs that are incurred in making the journey. This includes:
- any necessary subsistence costs incurred in the course of the journey
- the cost of meals necessarily purchased whilst an employee is at a temporary workplace
- the cost of accommodation and any necessary meals where an overnight stay is needed – this will be the case even where the employee stays away for some time.”
We naturally assume that the employer is likely to put the employee up in a hotel or a bed and breakfast. However what if that employee is likely to be working at a temporary workplace for a significant period of time? In these circumstances it may be more cost effective for the employer to pay for a flat for the duration.
Let us consider a personal service company (PSC) that secures a six month contract with its London based client. The director of the PSC lives in Newcastle where their company’s base of operations is also. The company concludes that it would be more cost efficient to take out a short term lease on a flat for the director to stay in rather than pay for hotel accommodation. Wouldn’t this be a taxable benefit-in-kind on the director though, as the company is providing the director with living accommodation?
There is no statutory definition of living accommodation and so it is given its everyday meaning. HMRC’s guidance contained in their Employment Income Manual (EIM), provides examples of what is and what is not living accommodation.
Is living accommodation
- Holiday villas and apartments
Not living accommodation
- Hotel room
- Other forms of board and lodging
- Non-residential accommodation such as a workshop, garage or office.
HMRC’s view is that living accommodation is something that gives the occupant the necessary facilities to live domestic life independently without reliance on others to supply basic needs. In practice, HMRC would be looking for an individual to at least have the use of a refrigerator and full cooking facilities, even if such facilities are shared. This sounds then as though our director from Newcastle is being provided with living accommodation and will cop for a benefit-in-kind doesn’t it?
Although EIM doesn’t specifically mention flats as being ‘other forms of board and lodging”, HMRC booklet 480, guide to expenses and benefits, does. Section 21.24 of the guide confirms that where accommodation is provided for an employee, such as a flat or hotel, whilst the employee is on business duties away from their home and normal place of work, then the cost may be allowable as a deduction under the expenses rule. The extent of any deduction will depend upon the circumstances. If the accommodation is no more than an alternative to hotel accommodation and is not available for private occupation, the whole cost of renting and running the flat may be allowed as a deduction. On the other hand, if the employee or his/her family also had the use of the flat as a private residence, any allowance would be restricted.
A London flat provided for an employee whose job is in London and the flat is used by the employee as a pied-a-terre, will not qualify as an allowable expense.
Having established that a flat qualifies as alternative board and lodgings, the cost of rent etc must be incurred whilst the employee is working at a temporary workplace for the expense to qualify under the travel rules. A workplace will be temporary if the employee goes there only to perform a task of limited duration or for a temporary purpose even where they attend it regularly. If the employee works there or is likely to work there for more than 24 months, then the workplace will become a permanent one and not entitled to tax relief on their travelling expenses, including the accommodation
When choosing a flat to rent, you should be able to demonstrate to HMRC that the cost is reasonable, as would be the case for hotel accommodation. The flat should either be to the same or less standard than your permanent residence, otherwise HMRC are likely to challenge the expense. Luxury penthouses are therefore out of the question!
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