Train & rail fares

Conditions

1. GOV.UK's self-employed expenses guidance lists train, bus, tram, air and taxi fares among the car, van and travel costs a sole trader or individual in a business partnership can claim as allowable business expenses, and lists travel between home and work among the costs you cannot claim.
2. The statutory test for a sole trader is section 34 ITTOIA 2005: in calculating the profits of a trade, no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade. HMRC's guidance is that the cost of travelling from home to place of work is generally disallowed, because the journey is, at least in part, occasioned by the private choice of where to live, and that it does not matter that you may at times work at home or keep your business records, materials or tools there (BIM37605).
3. There is an exception for an itinerant trade. Where an itinerant trader's base of operations is at their residence, HMRC says to allow the costs of travelling between the residence and the sites at which the trader works, an itinerant trader being one who travels from home to a number of different locations for the purely temporary purpose, at each, of completing a job of work (BIM37620). That does not reach travel from a home outside the trader's 'territory' (BIM37635).
4. For a limited company the test is section 54(1)(a) CTA 2009: to qualify for a deduction, the trade purpose of the expense must be the sole purpose (BIM37600). Where a company incurs an expense that is linked to the personal interests of a director, HMRC says first to consider whether the expenditure gives rise to benefits taxable on the director as part of their remuneration package, and if it is taxable on the director as part of that package, to allow the company the deduction as part of the costs of employing the director (BIM47107).
5. For an employee or director there are two routes to relief. Section 337 ITEPA 2003 allows a deduction for travel expenses the employee is obliged to incur and pay as holder of the employment that are necessarily incurred on travelling in the performance of the duties. Section 338 allows a deduction for travel expenses the employee is obliged to incur and pay as holder of the employment that are attributable to the employee's necessary attendance at any place in the performance of the duties, but not for the expenses of ordinary commuting or private travel, or of travel between any two places that is for practical purposes substantially either of them (EIM31815). Private travel is travel between home and a place that is not a workplace, or between two places neither of which is a workplace (section 338(5)). HMRC's guidance is that it should not argue that a journey to or from a temporary workplace is substantially ordinary commuting where the extra distance involved is 10 miles or more each way, and that a journey to a temporary workplace in a completely different direction from the ordinary commuting journey is not substantially ordinary commuting even if the distance is the same (EIM32300).
6. Ordinary commuting is defined by the places travelled between: section 338(3) ITEPA 2003 defines it as travel between the employee's home and a permanent workplace, or between a place that is not a workplace and a permanent workplace. Whether a place is a permanent or a temporary workplace, and so whether a journey to it is ordinary commuting, is a statutory test with several parts, and there are separate rules where you provide your services through an employment intermediary such as an agency, an umbrella company or your own company (section 339A ITEPA 2003, EIM32135). The Business travel page sets that test out. How it applies turns on your own working pattern and contract, so it is worth having an accountant check.
7. GOV.UK's guidance for employees says you cannot claim for travelling to and from work, unless you're travelling to a temporary place of work, and lists public transport costs among the costs you can claim. If your employer has paid some of your expenses, you can only claim tax relief on the amount they have not paid, and if you complete a Self Assessment tax return, you must claim through your tax return instead.
8. Where an employer pays or reimburses travel costs, section 289A ITEPA 2003 means no income tax charge arises on the amount under Chapter 3 of Part 3 (taxable benefits: expenses payments) where an equal or greater amount would be allowed as a deduction from the employee's earnings under Chapter 2 or 5 of Part 5 (Chapter 2 being where the travel rules in sections 337, 338, 339 and 339A sit), and the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements. GOV.UK's guidance for employers counts all non-business travel as private, including the journey between an employee's home and permanent workplace, and says that if an employer reimburses more than the necessary costs of business travel, the extra amount counts as earnings, with PAYE tax and Class 1 National Insurance deducted and paid through payroll.
9. If you want to claim part of a season ticket that also covers your journey between home and work, HMRC's guidance on the statutory test for a sole trader or company distinguishes a definite part or proportion of an expense that is wholly and exclusively for the trade, which is not disallowed because the expense as a whole is not, from an expense incurred for a dual purpose, which is not allowable (BIM37600). The statute itself states the part-deduction rule: if an expense is incurred for more than one purpose, the wholly-and-exclusively rule does not prohibit a deduction for any identifiable part or identifiable proportion of it incurred wholly and exclusively for the trade (section 34(2) ITTOIA 2005, section 54(2) CTA 2009). For an employee, HMRC's rule is that a definite part or proportion of an expense attributable wholly and exclusively to the duties can be deducted, but expenditure serving two or more purposes concurrently, one of them not to do with the duties, cannot be apportioned unless that purpose is merely incidental (EIM31661). Which side a season ticket falls on depends on how it is used, so take advice before claiming any of it.
10. For an employee or director, HMRC states that the tests that apply to travel expenses relate to the nature of the expense and not to the amount, and that a deduction should not be refused for first class rail travel on the basis that the same journey could have been made more cheaply in standard class. Where travel arrangements are unusually lavish, HMRC considers whether the expenditure is genuinely attributable to business travel or is some sort of reward (EIM31835).

Common mistakes

• Claiming a season ticket in full when it primarily covers commuting.
• Assuming a stop on the way makes a journey between home and work a business one. For a sole trader, HMRC states that visiting a supplier on a 'home to office' journey does not convert an otherwise non-allowable expense into an allowable deduction (BIM37630); for an employee, travel between two places that is for practical purposes substantially ordinary commuting is treated the same way as ordinary commuting (section 338(2) ITEPA 2003). HMRC's guidance is that it should not argue a journey to or from a temporary workplace is substantially ordinary commuting where the extra distance involved is 10 miles or more each way, and that a journey to a temporary workplace in a completely different direction is not substantially ordinary commuting even if the distance is the same (EIM32300).
• Applying the employee rules to a sole trader, or the other way round. The permanent and temporary workplace rules, including the 24-month rule, are employee rules in section 339 ITEPA 2003; a sole trader's journeys are tested under section 34 ITTOIA 2005.

What to keep

• Tickets, e-ticket receipts or booking confirmations.
• A note of the business purpose of each journey.
• For employees, records that the destination was a temporary rather than permanent workplace.

Real-world example

An employee based at her employer's Leeds office travels by train to a one-day meeting she is required to attend at a supplier in Birmingham, and buys a first-class ticket. Both ends of the journey are places she must attend for her work, so it is neither ordinary commuting nor private travel as section 338 ITEPA 2003 defines them, and HMRC says a deduction should not be refused for first class rail travel on the basis that the same journey could have been made more cheaply in standard class (EIM31835). If her employer reimburses the fare, section 289A means no income tax charge arises on it as an expenses payment where an equal amount would be deductible.

Frequently asked