Edinburgh-based accounting software firm FreeAgent has issued a warning to freelancers and sole traders travelling to the World Cup to help avoid any tax “own-goals.”
Around 65,000 British fans are expected to head to North America this summer (although the US contingent could vary widely due to a variety of immigration, visa, financial, political and general malevolence factors). The travelling fans are sure to include many sole traders, small business owners and freelancers, with many questioning what costs can and can’t be tax deductible as they juggle working remotely with trying to enjoy everything the tournament has to offer.
Tax experts at FreeAgent are warning those who claim any expenses relating to a trip to the World Cup from their business to check HMRC’s criteria, so any penalties are left firmly on the pitch.
Common items that business owners look to claim tax relief on include hotel stays, flights, meals out and drinks – but HMRC’s boundaries are clear. Unless your trip is wholly and exclusively for business, these expenses won’t be allowable in full, and will probably not be allowable at all.
Emily Coltman FCA, chief accountant at FreeAgent, which has been helping UK small businesses for nearly two decades, said: “Claiming business expenses is arguably the main risk for those heading to the World Cup. Whilst work, travel and ‘just a quick call’ might blur when you’re in the States, HMRC’s rules on what you can and can’t claim on business remain clear.
“To avoid any tax penalties, the main thing to ask yourself is: what is the purpose of this trip? Plenty of people will spend two weeks in America to watch the football, do a bit of sightseeing and soak in the atmosphere. That being said, it wouldn’t be unusual for those self-employed or small business owners to answer a few emails, take a few calls or do a little networking whilst abroad.
“Even if this was the case, as your trip is being undertaken for pleasure, HMRC would consider this as a personal trip – so some incidental work isn’t going to be enough to make your expenses tax deductible.
“Only if your trip also has a definite business purpose, for instance you’re visiting American clients or carrying out research that you can only do ‘on the spot’, should you even consider trying to claim any of your costs, and even then you’d only be able to claim costs that you can relate solely to your business activity. HMRC takes a very strict view on this so make sure you keep receipts for these costs and proof that they were incurred for business, e.g. a receipt for the hire of a meeting room.”
FreeAgent also recommends that freelancers or contractors be aware of whether they may unintentionally create a US tax bill as a result of their trip, and seek professional advice from an accountant if they are unsure. The general rule set by the IRS is that work that is physically performed in the US and delivers income is US-taxable, which could be particularly important for those in the creative industries like content creation or social media.
This means that content creators who may be sharing their trip with their followers through monetising social platforms, or contractors signing deals with new US-based clients, may be at risk of creating taxable activity.
Coltman added: “If you’re a UK sole trader and carry out work while in the US, you may still need to declare that income to HMRC in the UK and, depending on the circumstances, could also have US tax reporting obligations.
“The UK-US tax treaty is designed to help prevent the same income being taxed twice, but it’s important to keep records of any work undertaken and seek professional advice if you’re unsure of your obligations, and to make sure you fill in all your tax forms correctly.”
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