Foreign business travel expenses and allowances explained

What is HMRC's position on claiming international business expenses? HMRC has an ‘all-or-nothing' rule, which you'll need to bear in mind whenever you put in a claim for business expenses.

It says that, in order to claim tax relief on business expenses, they "must be incurred wholly, exclusively and necessarily in the performance of your duties."

The good news is this rule applies whether you're in a boardroom in the City of London or in an executive suite in downtown Manhattan. The trick is not to mix business with pleasure (insofar as your receipts are concerned).

So, to avoid falling foul of HMRC's ‘duality' clause – which forbids business expenses having a dual purpose (i.e. business and pleasure) – you need to ensure that you gain no personal benefit from the expense otherwise it won't be considered a legitimate business expense.

Let's say London-based Adrian the architect wraps up a conference in Manhattan and wants to take in the sights before hopping on a plane home, but his excursion will set his travel itinerary back by a couple of days. Adrian would be able to claim expenses for the return flight from London to New York whereas he'd have to foot the bill for the two-day extension of his return ticket. Why? Because the extra expense Adrian incurred was for pleasure, not business.

Whilst it isn't impossible to enjoy some downtime when you travel overseas on business, you need to draw a clear line between schmoozing clients at a wine and cheese function, for example, and leisurely wine tasting at a local vineyard. The rule of thumb is if one of your receipts or invoices contains spending for personal use, you generally won't be able to claim it as a business expense.

How can you prove your foreign travel expenses? Your claim for overseas travel expenses must be genuine and is therefore only as good as the documents proving them.
Here's a non-exhaustive list of documents that HMRC will accept as evidence in support of your expenses claim:

• Expense receipts.
• Travel itinerary.
• Client and prospective client list (including contact names and information, meeting venues, dates, times, outcomes and correspondence pre and post-trip).

Similarly, if you claim travel and related expenses for taking a brief trip abroad for work-related training, you'll need to provide documents showing, for instance, the course length, fee, payment method used and duration of your stay.

If you're unfortunate enough to have HMRC sniffing around your expense claims and they end up rejecting them, the price you pay may be a steep one. It amounts to the difference between the original and the revised tax figure plus interest and a penalty.

What happens if you lose your overseas accommodation and subsistence receipts? When you're travelling on a business trip – particularly overseas – holding onto your receipts can be like pouring water through a sieve.

But, if you lose your receipts, HMRC's comprehensive list of benchmark scale rates for accommodation and subsistence payments can be a godsend. It covers just about every country and major city you can think of. The important thing to bear in mind is that anecdotal evidence suggests that HMRC rates are typically more generous than you would ordinarily spend, so it's best practice to compare your actual spending rates with HMRC's benchmark rates. If the latter are higher, it's a good idea to put a claim in for benchmark rates and avoid claiming the actual rates altogether.

How can you reclaim sales tax? In many parts of the world, foreign visitors can reclaim sales tax.

This is typically done in one of two ways – either when you leave the country or when you make a purchase at a tax reclaim counter (in a shopping centre, for instance).

So, if Adrian the architect wants to buy that dirt cheap MacBook Pro with retina display he's been eyeing-up for his business, he can go right ahead and reclaim the sales tax while he's at it.

He'll need to make a declaration when he re-enters the UK (and pay any VAT that may apply) but, if he's registered for VAT, he can reclaim it on his next return. Adrian will not only save a pretty penny, but his business will reap the design benefits of having a brand new MacBook Pro!

If your business has interests overseas, it'll undoubtedly incur a range of expenses, such as travel and purchases in foreign currency. As long as they're incurred "wholly, exclusively and necessarily" for your business, they'll qualify as a bona fide business expense. So, the next time you travel overseas on business, you can do so with complete peace of mind – and no expenses spared.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.