How to Stay Safe from HMRC
12 March 14 | By: Jas Jhooty
The current tax rules on employee travel expenses have been around since 1998 when HMRC published their somewhat contradictory Booklet 490. Travel and subsistence costs make up the vast majority of the expenses claims being processed up and down the country so a thorough understanding of the rules is a necessity.
It would seem sensible that travel and subsistence expenses reimbursements should be relatively straight forwards but it is actually one of the most complex areas of employment tax legislation for employers to understand and to get right.
Straight forward cases
If you send you employee away on an irregular business trip they can be reimbursed their full travel costs both tax & NIC free. There are no limits prescribed in the legislation to what form of travel the employee can take so budgets permitting, you can pay for first class travel, limousine hire or even helicopter flights if you are inclined to do so. The only stipulation is that it is necessary for the employee to make the journey for purely business purposes.
Complications will arise where there is a failure to understand the basic principles of: –
If an employee attends a place regularly to perform their duties of employment, that place becomes a permanent workplace for tax purposes. Travel costs reimbursed to an employee relating to journeys to and from their home to a permanent workplace are referred to as ordinary commuting costs and are almost always taxable as these costs are treated as private travel, not business.
(See this article for examples of the extremely limited circumstances when you are allowed to pay for an employee’s ordinary commuting costs tax-free.)
It is also possible for an employee to have more than one permanent workplace at the same time. If the employee regularly travels to another workplace or if they spend at least 40% of their time there, this location also becomes a permanent workplace and any journeys costs from their home to that location are deemed to be taxable, if they are reimbursed to the employee. Please note however that journeys between one permanent workplace and another permanent workplace are allowable.
If you send your employee off site to work on a project for a length of time, this second location becomes a temporary workplace. A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration, or for a temporary purpose even where the employee attends that workplace regularly.
Travel from home to a temporary workplace is allowable for a maximum period of 24 months. However as soon as it becomes known that the employee will in all likelihood have to remain at the temporary workplace for more than 24 months then the temporary workplace becomes a permanent workplace and all future journey costs to and from their home to that location become taxable. This is even true where at the outset the employer knows that a particular project will exceed 24 months.
If time spent at a location is less than 40% of total time, the location can only be treated as a temporary workplace where each visit is for a self contained, temporary, purpose and not, e.g. a series of visits in relation to a continuous task.
There are specific safeguards in place to prevent abuse of the temporary workplace rules. Where the journey to a temporary location is broadly the same as the employee’s ordinary commuting journey to his or her permanent workplace, tax relief will be denied on the basis that the journey is normally treated as private travel. Generally, this applies where the journey is in a similar direction and is less than 10 miles extra each way than the normal commute.
The Office of Tax Simplification (OTS) recently issued a report of their proposals to simplify benefits and expenses legislation and of one of their main recommendations is for a complete overhaul of the current travel and subsistence expenses rules. Their proposals include reducing the 40% rule for determining a temporary workplace to 30% and to allow a full deduction for the first 24 months of travel to a temporary workplace regardless of the intended length of the assignment.
Click here for full details of the OTS proposals.
How emTax can help
The above provides a very brief overview of the current rules surrounding travel expenses. This area can become even more complicated with other special rules to consider in addition to the above points, e.g. for area based employees, depots and international trips. Also issues around excessive expenditure, dual purpose trips and fixed sum allowances can throw up additional issues and complexities.
For more advice on this or any other employment tax query please do not hesitate to contact us.