If you’re self-employed, it is possible to claim tax benefits related to your daily expenses. One of these expenses is the food allowance offered by HMRC, where self-employed people can claim their daily food expenses. As a self-employed individual, while preparing your self-assessment tax return, you can apply for the food allowance offered by HMRC as tax relief.
What Is Self-Employment?
Self-employment is when individuals work for themselves rather than an employer and receive compensation for work performed. Each agency defines self-employment in its way, but usually, self-employed people are those who can decide when, where and how much they want to work.
Being self-employed generally means you manage your workload and the future success of your business. You deal directly with customers and make sure that they are happy with your work. Many people choose to become self-employed because they enjoy the freedom. Therefore, the self-employed include contractors, directors of a limited company, business partners or owners of a business.
Self-employment refers to those who decide to work for themselves and operate their own business. There are approximately 14 million self-employed in the UK, according to 2016 statistics. People can work for themselves as a sole trader or partner of a limited liability partnership, but not through incorporated or unlimited liability companies.
Difference Between Business Partners And Business Owners
Business partners are often misunderstood as business owners. A business partner is someone who’s involved in all aspects of the work involved, like running, growing, or maintaining a company or business. They’re responsible for their actions and the actions of everyone else working on the project. Technically, they can be an investor or co-owner.
On the other hand, a business owner owns a company but doesn’t necessarily have much to do with its day-to-day operations. They provide financial support and occasionally get involved in major decisions that might significantly impact its direction (think product line/ marketing strategy, etc.). Owners often hire people to handle these key areas to focus on more regulatory features like managing profits and cash flow. In addition, there are two types of self-employment:
Independent Contractors
Independent contractors have their businesses and are not part of any large organisation. They get paid for projects or specific services, and they don’t receive benefits like a fixed salary or pension contributions like ordinary employees do.
For example, a lawyer or accountant often charges by the hour for their expertise. Another example of independent contractors is plumbers, electricians, and advisers. Independent contractors can also work for other companies or businesses on a contract basis without being employed.
Sole-Traders Or Proprietors
Sole proprietors or business owners are self-employed individuals who run independent businesses and take personal responsibility rather than working for someone else. This sometimes involves growing operations by hiring people to help with various projects and tasks.
Why Do Most People Choose Self-Employment?
The main reason why people are becoming self-employed is due to its many advantages, such as:
Flexible Working Hours
One of the main advantages of becoming self-employed is having their work and personal life schedule more relaxed than a typical 8 hours job.
Work From Wherever You Want
Being your boss is a great deal of fun and allows the self-employed to experience the freedom to work from anywhere they want.
Tax Benefits
The UK government provides different tax benefits to self-employed individuals to encourage self-employment.
Control Over Your Income
Being self-employed has many privileges. For one thing, self-employed people have the freedom and power to decide how much they take home what they have earned. This offers great motivation to drive their business forward to make more money.
Select The People You Work With
Self-employment gives you the chance to choose whom you want to work with, and thus it saves you from getting stuck with a coworker who doesn’t fit your working style.
Allowable Expenses For Self-Employed
Being self-employed has its privileges, but on the other hand, it means taking on risks and costs that you don’t have when working for someone else. It allows you to have expenses that can only be considered “allowable” if they are business-related. These allowable expenses include:
Accommodation
Suppose you are starting a business and have rented out an office space to carry out your activities. In that case, the UK government allows you to deduct the cost of rent paid in that particular year. In addition, if any equipment has been used, you can also deduct its cost.
ย Travel Costs
The cost of travel includes hiring cabs or vans, including bus, train, or plane costs. These are all your travel expenses and are allowable expenses.
Health Insurance Premiums
You can deduct your health insurance costs from your expenses and treat your insurance as a claimable expenseย
Publications And Subscriptions
It can take up their time and energy when someone owns a business. But there are still many other expenses that one must account for every month explicitly related to the business. One of these expenses includes subscriptions to specialised magazines, journals, and books directly to management and professional growth areas.
For example, if an individual runs a restaurant and has subscribed to those culinary periodicals or newspapers published weekly regarding the restaurant industry. These expenses would be deductible simply because they are directly related to the business in question.
Interest:
You must know that credit card purchases and interest are not tax-deductible. Still, interest on a loan from a bank is 100% tax-deductible.
Meals:
In the past, self-employed people were not allowed to claim their food allowance because HMRC saw that everyone must eat to live. As a result, HMRC deducted such expenses from their income. However, HMRC has officially changed its views on this condition and removed this roadblock allowing self-employed individuals to claim food allowance.
What Are The Self-Employed Average Daily Food And Drink Costs?
You can include specific allowable expenses in your claim as a self-employed individual when you’re on business trips. A regular meal you ordered from a restaurant would not be one of those expenses unless you ordered a meal during a business trip.ย
The tax-free allowance could be different depending on your situation. For example, suppose you are travelling for work and can show that what you have paid for is considered an extravagant meal instead of day-to-day food consumption to carry out your business. In that case, HMRC will allow a deduction of 50% of the cost of your meal if you are able to keep any supporting records.
On the other hand, HMRC will also allow 50% of the standard meal allowance if your actual meal receipts are presented with specific details on the time, place, and business-related reasons behind travel.
The meal rules are like travel expenses – if it’s not business-related, then one does not have the right to claim it. For example, eating a meal at your office desk doesnโt count as a business expense. Therefore, it’s essential to investigate whether the item is tax-deductible or not when you’re buying food on behalf of your business.
When Can You Claim Food Allowance
One of the scenarios that can be considered a food allowance is if you’re away from home for a night to go to work the following day to run the business. However, you can claim the allowable expense only if it meets the following conditions:
- The costs for food and beverages occur while travelling for business purposes.
- You travel to different locations as part of your work.
- Stay over a night during an official trip.
The HMRC has reviewed its policy regarding food allowances for the self-employed. It now also covers people who deliberately do not use hotels, for example, taxi and cab drivers who sleep in their taxis and can claim their food allowance as they are not claiming any accommodation allowance. Additionally, HMRC amalgamates situations where you stay with someone you know (a friend) when you travel and eat outside.
However, claiming expenses is tricky since HMRC stated that the self-employed could claim their expenses solely for business purposes.HMRC launched an advisory system to benchmark scale rates that will help determine the acceptable business subsistence costs, such as:
Breakfast Rates
A standard price of ยฃ5 can be claimed if you have left your home earlier than usual and before 6 am.
One-Meal Price
The standard rate of ยฃ5 can be claimed when you are not at home or your usual workplace for longer than 5 hours.
Two-Meal Price
The standard rate of ยฃ10 is payable when you are away from your home or at your usual workplace for a minimum of 10 hours.
Late Evening Meal Rate
The rate of up to ยฃ15 is payable if you work late beyond your regular working hours.
It is a fact that HMRC offers more generosity to employees than self-employed in terms of food allowances. So, sometimes employees could receive some meal as part of their employment package.
To claim the expense for food and drinks, rather than to list every single item of your food expenses, it’s always better to use the total amount or a single figure for the entire food bill. However, even if you only put in a single figure, you must determine all expenses precisely. In addition, you must keep receipts for your food expense bills.
To inform HMRC, you can utilise the short version of the self-employment page of your tax returns (SA103S) if your turnover falls within the threshold of ยฃ85,000.
If there is no other consideration available and the total annual turnover of your business exceeds ยฃ85,000. In that case, you are required to declare your actual expenses on your self-employment (full) pages. It is also possible to use the full self-employment version of the supplementary pages (SA103F).
Final Thoughts
HMRC has precise and strict criteria for tax relief. For example, you can only claim back expenses totally and exclusively for business purposes, which can sometimes be challenging to prove.
Self-employed usually conduct business affairs under their terms, but that isn’t always the case with limited companies owners. So, if you aren’t on the right page regarding HMRC’s rules, they can make matters difficult if they happen to find out.
So, it is essential to understand the rules on how expenses can be claimed because they differ depending on whether you’re a sole trader or a limited company.
You will only be able to claim food and drink expenses if they’re business-related. However, it’s important to note that these claims are only acceptable in a handful of situations.
Additional Resources
- Self-Employed Income Tax Calculator
- VAT on Food and Its Future in the UK Hospitality Industry
- Key Pain Points Faced by Self-Employed Individuals
- Top Home-Based Business Ideas that You can Start
- A Comprehensive Guide: How to Pay Taxes as a Self-Employed Carer
- Self-Employed Hairdressers โ What Expenses Can you Claim?
FAQs
What Amount Of Meal Allowance Can I Be Eligible To Claim?
Ans: According to the HMRC rates, the maximum amount of meal allowance you are entitled to be as follows:
ยท 5 hours of ยฃ5
ยท 10 hours of ยฃ10
ยท 15 hours of ยฃ25
When Does A Meal Become A Business Expense?
When the food is linked or related to a business or trade then it is deemed as an expense of a company and can be claimed as a deduction.
Are Food And Drinks Allowable Expenses?
HMRC considers that you’re buying that meal in a specific situation while you’re travelling for business and is an additional expense to your daily expenses. Therefore, it’s tax-deductible as an allowable expense of the company.
How Long Do Self-Employed People Have To Keep Receipts?
Self-employed must keep records for at least five years following the deadline for submission on 31 January.
What Receipts Should You Keep When You’re Self-Employed?
Keep a record of all your products or stock-related receipts, including cheque books, invoices, checkouts as well as bank slips.
Do I Qualify For A Food Allowance If I’m Self-Employed?
Yes, only if you are self-employed and can demonstrate that it is an expense for the business.
