John M Shanahan & Co.

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Phone: 057 93 22100

email: info@shanahan.ie

Travel & Subsistence - a Revenue perspective

Travel & Subsistence expenses for sole traders

February 5, 2016

An individual sole trader is entitled to claim a tax deduction for any expenses wholly and exclusively laid out or expended for the purposes of their trade or profession. Whether or not an expense is wholly and exclusively incurred for the purposes of a trade according to Revenue is a test best interpreted with the assistance of case law, even if in some instances one would be forgiven for feeling that the Law is an Ass.

One would be further forgiven for not forgetting the amount of un-vouched expenses paid annually by public services to the judiciary, which begs the question as to why the same principles are not applied to them.

Or is it a case that the small sole trader in this country is a soft target, while the larger companies & multi-nationals etc. appear to be the untouchables!

Revenue has recently published two Tax and Duty Manuals examining when travel and subsistence expenses pass this test, and are therefore tax deductible.


Revenue Travel Manual examines when travel expenses are allowable Case I / II deductions, while their Subsistence Manual  gives consideration to when food and subsistence payments are allowable deductions.

In many cases, for convenience, sole traders will include all of their travel expenses in their business accounts and then ‘add-back’ a portion to remove the cost of personal usage from the computation of assessable profits. When determining the appropriate percentage add-back for an individual taxpayer regard should be had to the principles
set out below.

The Principles being applied in relation to Travel:-

  • There is no requirement that the expense is necessarily incurred, for the purpose of the trade or otherwise. The necessity is irrelevant once the expense is incurred in furtherance of the trade.
  • One must look at the purpose of the expense (whether stated or subconscious) and not just its effects.
  • As a general rule, travel between home and work, even if some work is carried on at home, always carries the purpose of getting home – it facilitates living away from work. The duality of purpose renders the expense non-deductible.
  • So-called ‘itinerant’ traders are an exception to the general rule that travel between home and work is incurred by the decision to live away from work.
    Home, for such traders, is the only place new customers can contact them, where they store their tools etc. Therefore, they go home to look for new work.
    In these instances, getting home is an effect and not a purpose of the journey.
  • It is not necessary to determine where a trade is carried on, or to establish a ‘base of operations’. Travel between a home office and a main ‘base of operation’ will not necessarily be deductible. One must look solely to the
    statutory test, the main focus of which is the purpose for which the expenditure was incurred.
  • There is a distinction between “travelling in the course of a business and travelling to get to the place where the business is carried on”.

The Revenue Subsistence Manual sets out the principles, for determining the deductability of food and subsistence expenses in the context of a trade or profession.

The Principles being applied in relation to Subsistence:-

  • One must look at the purpose of the expense (whether stated or subconscious) and not just its effects.
  • Humans eat to live, they do not eat to work.
    Therefore expenditure incurred on food in the course of a trade or profession will nearly always have a duality of purpose in that the person has the ordinary physical human need of eating.
    Where additional expenditure is incurred on food because the taxpayer must eat away from home, that expenditure still has a duality of purpose meaning it is not an allowable expense.
  • Hotel accommodation incurred on a business trip – where there is no personal motive in the trip – is an allowable deduction.
  • Where a hotel bill for a business trip includes reasonable amounts for both overnight accommodation and food then these two amounts should not be disaggregated. If the accommodation is allowable then so too is the food.
  • Where a person is on a business trip and the flights would be deductible, but it is more cost efficient to stay an extra night and return on a flight the following day, rather than return immediately, then any incidental private element arising
    from that extra day does not stop the cost of the flights being deductible.

Note

It is important to note that Revenue will not accept deductions for travel or subsistence expenses of sole traders based on the civil service rates.

The Case Law being brought to the attention of sole traders and used as precedence is cited in each publication as referred to in the links noted here-under:-

Revenue Operations Manual - TRAVEL -Manual  Part 04-10-01 (PDF, 175KB)

Revenue Operations Manual - SUBSISTENCE -Manual  Part 04-06-17 (PDF, 179KB)

We at Shanahan's feel this is definitely an area which Revenue have targeted in the past and will continue to do so with little mercy given the level and slant of case study research put into the above manuals.


 

 Contact John M Shanahan Accountants for expert advice on
Taxation, Business Management, and Financial matters.

Phone 057 93 22100 or email info@shanahan.ie or use our contact form here- Contact Form.

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