One expense claim from a sales trip can contain a zero-rated train ticket, a standard-rated hotel bill, a meal, a mileage claim and a client dinner. Each of those has a different VAT position and a different tax treatment, so posting the lot to “Travel” throws away information you need for the VAT return and for the year-end tax computation.
The accounts
| Account | What goes in it | VAT position |
|---|---|---|
| Travel – fares | Rail, air, bus, taxi, ferry | Most passenger transport is zero rated; taxis from VAT-registered firms carry VAT |
| Travel – accommodation | Hotels and other overnight stays on business trips | Standard rated; reclaimable for business travel |
| Subsistence | Meals and drinks while travelling on business | Reclaimable with a valid receipt |
| Mileage allowances | Payments to employees for using their own vehicles | Outside the scope; only the fuel element can carry VAT |
| Parking and tolls | Car parks, congestion charges, bridge tolls | Varies; many public charges carry no VAT |
| Entertaining – clients | Meals and hospitality for customers and suppliers | Input VAT blocked |
| Entertaining – staff | Staff parties and team events | Reclaimable; tax exemptions depend on the event |
Client entertaining is the one to keep firmly apart. It is disallowed for corporation tax and income tax, and the VAT on it cannot be reclaimed, so mixing it into subsistence overstates both your tax deductions and your input VAT. Our guide to marketing and advertising in the chart of accounts explains where the boundary sits.
Posting a mixed expense claim
An employee claims for a two-day trip to a customer’s site:
- return rail fare £96 (zero rated)
- hotel £150 including £25 VAT
- dinner on their own £36 including £6 VAT
- dinner with the customer £84 including £14 VAT
- business miles in their own car, claimed at HMRC’s approved rate, £18
The claim is reimbursed through the expenses system, not payroll:
| Account | Debit | Credit |
|---|---|---|
| Travel – fares | £96 | |
| Travel – accommodation | £125 | |
| Subsistence | £30 | |
| Entertaining – clients | £84 | |
| Mileage allowances | £18 | |
| VAT control account | £31 | |
| Employee expenses payable | £384 |
The £14 VAT on the customer dinner is not reclaimed; it stays in the entertaining cost. The hotel invoice is addressed to the employee, but HMRC allows input VAT on accommodation and subsistence the business reimburses for staff travelling on business. Receipts must support every amount.
Mileage and fuel
Mileage payments to employees using their own cars, vans or bikes are tax-free up to HMRC’s approved mileage allowance payments. Paying more creates a taxable amount on the excess. The current rates and conditions are explained in mileage allowance.
A VAT-registered business can reclaim VAT on the fuel element of a mileage payment if the employee provides fuel receipts. The fuel element is worked out using HMRC’s advisory fuel rates, which HMRC reviews quarterly. Calculate the VAT as one-sixth of the fuel element for a standard-rated fuel purchase and post it to the VAT control account, with the rest of the claim in mileage allowances. The same advisory rates are used when company car drivers repay the cost of private fuel. Keeping a mileage log for every claim is the evidence HMRC expects.
When travel becomes a benefit
Reimbursing genuine business travel has no tax cost. Problems arise when the claim is not really business travel:
- Ordinary commuting between home and a permanent workplace is private. Paying for it is taxable through payroll.
- Trips to a temporary workplace are business travel; trips to somewhere the employee has worked for, or expects to work for, more than 24 months normally are not.
- Subsistence must relate to qualifying business travel; HMRC benchmark scale rates can be used instead of receipts only under the conditions HMRC sets.
- Family travelling along at company expense is a benefit unless they have a business role.
If the company pays a taxable amount that is not put through payroll, it needs to report it, for example on a P11D, or settle it through a PAYE settlement agreement. A written travel and subsistence policy stops most of these questions arising.
Directors and sole traders
The same accounts work for a director claiming from their own company. A sole trader uses them too, though the sole trader’s own mileage is usually claimed using simplified expenses or actual costs, not an allowance paid to themselves; see mileage and travel claims.
A quick review routine
Each month, scan the subsistence account for meals with more than one person, which may be entertaining. Check that fares show no VAT unless the ticket says otherwise, and that mileage claims agree to mileage logs. Ten minutes here saves a difficult conversation in a VAT or PAYE compliance check.