Generally, an employee or director is liable to tax on expenses received from an employer. However, where an employee or director incurs motor or subsistence expenses in the performance of the duties of their employment/office then the reimbursement can be made tax free with certain conditions.
Employees or directors must be on a business journey from their normal place of work to claim tax free mileage and subsistence.
A common mistake that sole traders make is to claim mileage and subsistence using Civil Service Rates.
They can only claim for the actual expenses they incur so they should keep receipts for the business portion of motor expenses (fuel, motor tax, motor insurance), hotels and related expenses.
The Revenue Commissioners are always reviewing mileage and subsistence claims so make sure your expense claims and records will withstand detailed Revenue scrutiny. If they don’t it will cost you!
At present Revenue are undertaking a national review of mileage and subsistence claims (the National Contractors Project) relating to contractors. Revenue have advised that cases are selected based on “high levels of tax-free deductions from gross income”. Apparently the average settlement with Revenue is €60,000 plus.
If you have been claiming mileage and subsistence expenses in your own business my advice is that you should immediately review your records and if they are deficient in any respect you should:
- Correct your errors now so that any future claims are valid and
- Seek advice on the extent of your potential tax liabilities and penalties and the proper course of action to take.
Remember that travelling to and from home cannot be claimed as mileage. Where an individual sets out on a business journey directly from home without calling into the office or where the employee or director returns home directly from a customer’s business premises, the distance travelled is decreased to be the shorter of (i) the distance between home and the customer’s business premises and (ii) the distance between the office / normal place of work and the customer’s business premises.
There are two normal methods of tax free reimbursement of expenses from an employer to an employee/director.
1. The repayment of the expense incurred by the employee/director for travel or subsistence on production of a receipt by the employee/director, for example a petrol receipt or a receipt for a hotel.
2. Using mileage rates within current civil service limits. This method of reimbursement can be done without the production of receipts but detailed records relating to each business trip must be kept and retained for 6 years. The rates depend on the cc of the car and can be found here.
In order for a reimbursement to be made without the deduction of PAYE/PRSI a detailed record of all journeys must be maintained, and include the following:
- Name and address of employee/director
- Date of the journey
- Reason for the journey
- Starting point, destination and finishing point of the journey
- Basis for reimbursement of the travel expenses e.g. meeting client.
Without this record the Revenue Commissioners may be in a position to apply PAYE/PRSI on reimbursements. All records relating to reimbursements should be retained by the employer for examination in the event of an audit.
If you want a copy of the form that we strongly recommend should be kept call Sinéad on 021 4310266.
An overnight allowance covers a period of 24 hours from the time of departure, as well as any further period not exceeding 5 hours, which is spent away from the normal place of work on a business trip.
- Where an absence exceeds 24 hours, a day allowance at the appropriate rate may be paid only if the last period of 24 hours is exceeded by 5 or more hours.
- The normal rate is payable for absences up to 14 nights.
- The reduced rate is payable for each of the next 14 nights.
- The detention rate is payable for each of the next 28 nights.
For absences over 56 nights, employers should make an application to the appropriate Revenue Office with a view to agreeing the rate to be applied.
The period of subsistence at any one location is limited to six months.
As with mileage, proper records must be kept.
Subsistence rates can be found here.
Certain industries have agreed different rates with the Revenue Commissioners, such as “country money” for construction workers and electrical contractors and various subsistence rates for road haulage drivers. It is worth checking with the representative body of your industry (e.g. Road Haulage Association) to see if specific rates have been agreed with the Revenue Commissioners.
For sample record templates, please email me on firstname.lastname@example.org.