Your Business Travel Deductions Are Almost Certainly Wrong. Here Is Why.
HMRC allows generous deductions for business travel. Most businesses claim less than they are entitled to — not because the rules are restrictive, but because the classification is wrong. Subsistence claimed as entertainment. Scale rates not applied. Mileage at 25p when HMRC approves 45p.
Subsistence vs entertainment: the expensive mistake
A working lunch with a client to discuss a live project is subsistence if the primary purpose is business. The same lunch framed as 'client entertainment' becomes non-deductible under ITTOIA 2005 s.45 (for unincorporated businesses) or CTA 2009 s.1298 (for companies). The distinction is not the food — it is the purpose. HMRC's own guidance (BIM45000 series) confirms that reasonable subsistence incurred in the performance of duties is deductible. The test is whether the expenditure was incurred 'wholly and exclusively' for business purposes — and a working meeting to discuss deliverables meets that test. Many accountants classify all meals with clients as entertainment by default. This is conservative and costly.
HMRC overseas scale rates
HMRC publishes benchmark scale rates for overseas subsistence (the 'worldwide rates') that can be claimed without receipts. For many destinations, the published rates exceed what employees actually spend — particularly for accommodation in Eastern Europe, Southeast Asia, and parts of South America. A business that claims actual receipted costs of £45 per day when the scale rate for that country is £65 per day is voluntarily surrendering £20 per day in legitimate deductions. For a director making 30 overseas travel days per year, that is £600 in missed deductions — every year.
The 45p mileage rate
The HMRC-approved mileage rate for cars is 45p per mile for the first 10,000 business miles and 25p thereafter. Some businesses reimburse at a flat 25p per mile from the first mile, or at the company's internal rate which may be lower than HMRC's approved rate. The difference between the HMRC rate and the actual reimbursement is a tax-free Mileage Allowance Relief claim under ITEPA 2003 s.229-236. An employee driving 8,000 business miles at a reimbursement rate of 25p per mile can claim MAR on 20p × 8,000 = £1,600 — reducing their taxable income by that amount.
Mixed business/personal trips
A five-day overseas trip where three days are business meetings and two days are personal sightseeing does not make the entire trip non-deductible. The transport costs (flights, rail) are deductible in full if the primary purpose of the trip is business — HMRC does not require apportionment of the main travel cost if the trip would have been made regardless of the personal element. Accommodation and subsistence are deductible for the business days only. Many accountants disallow the entire trip if any personal element exists. HMRC's guidance (BIM37600 series) does not support this approach.
What to do now
Pull your last 12 months of travel expenses. For each trip, check: was subsistence classified as entertainment? Were HMRC scale rates applied for overseas travel? Was mileage claimed at the full 45p rate? Were mixed trips apportioned correctly rather than disallowed entirely? In our experience, a review of travel expenses for a business owner making 20+ trips per year typically identifies between £1,000 and £5,000 in legitimate additional deductions. The cost of the review is recovered many times over.
Apply for a Strategic Review
This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.