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Threat to tax-free day subsistence under proposed new business travel rules
6 November 15 | By: Jas Jhooty
HM Treasury have recently issued a discussion paper about their proposed new Travel & Subsistence (T&S) rules following on from last year’s Office of Tax Simplification’s review of employee benefits and expenses.
The existing T&S rules have been around since 1998 and are considered to be well understood by most employers. However there are elements contained in the existing rules that are considered to be problematic for employers to interpret correctly. The new T&S proposals attempts to address these issues.
New principlesThe government is proposing a number of principles to clarify these problem areas: -
- that tax relief should continue to be available for business travel, but not for ordinary commuting
- any tests should be objective and based on measurable facts as far as possible – they should not rely on the intentions of the employee
- new rules should not be based on the concepts of ‘permanent’ and ‘temporary’ workplaces except and unless these terms carry their everyday meaning
- employees should not have their journeys to multiple locations or areas which are a significant distance apart all treated as being ‘ordinary commuting’
- relief should not be available for subsistence where this is essentially akin to a private expense
- any changes should not come at an additional cost to the exchequer
Proposed frameworkThe intention for the proposed new framework would be to broadly allow tax relief for three types of journeys:
- journeys made necessarily in the performance of the duties of the employment
- journeys to allow the employee to attend a location where their attendance at that location is a necessary part of their job, and the location is not the employee’s “main base”
- journeys to the employee’s main base where all bases of the employee are ‘detached duty’ locations
The intention would be for employees to consider these rules in order – they would not need to consider the later rules if they had already qualified for relief under one of the earlier rules.
Travelling in the performance of the duties
The first of these three rules is essentially unchanged from the current rule for employees for whom travelling is an intrinsic part of their job. The government believes that this rule currently works well for those employees that are affected by it, and that it is reasonably well understood by employers.
Travel to locations other than the employee’s “main base”
Of the three rules in the framework, the rule allowing relief for necessary travel to locations other than the employee’s “main base” is the biggest departure from the current rules.
This rule would require an employee to identify any “bases” that they have. A “base” for these purposes would be defined as any location where the employee necessarily spends more than 30% of their working time.
If an employee only has one “base” then that location would be the employee’s “main base” and the employee would be entitled to tax relief on home to work journeys to any location except their main base. If an employee were to have more than one “base” then the rules would need to specify which base is the employee’s “main base”. A straightforward way of doing this would be to require the employee to nominate which of the bases is their ‘main’ base.
If an employee had no bases at all then they would by extension not have a main base, and therefore be entitled to tax relief on all of their necessary travel for work, including home to work location travel.
Travel on detached duty
The third rule is essentially a much simplified version of the current “temporary workplace” rule.
The broad intention is that where an employee is on detached duty, as part of an ongoing employment, they would be entitled to tax relief on their travel to that detached duty location.There are a number of ways that a ‘detached duty work location’ could be defined, e.g.: -
- the task or job the employee is performing at that location is of a limited duration (in other words, the job or project that the employee is attending the location to work on, is temporary); or
- there is only a requirement for the employee to attend the workplace for a limited duration (ie the employee is only needed at a location on a temporary basis, e.g. for maternity cover)
The government are proposing that relief is available for the whole of the first 24 months of costs for T&S associated with a period of detached duty.
e.g. A project manager working for an IT firm is seconded to manage a project at a client’s premises for three years. They commute to the site from their home rather than incurring costs of a hotel. The project manager would currently not qualify for any tax relief as they know from the outset that they will be at the location for more than 24 months.
Under the proposed rule, the client’s premises would be considered a detached duty location, as the task that they are performing is for a limited duration (the three years of the project). They would now also qualify for relief on their travel to and from this location for the first 24 months, but not the remaining 12 months of the total three year period.
Disallowance of day subsistence
HM Treasury’s aim is to make any changes to T&S rules cost neutral. As they are proposing relaxations to business travel rules, the quid quo pro is that they want to remove tax relief for day subsistence. Their argument is that the current allowance of day subsistence costs relates back to an archaic tax case from the 1930s when most employees enjoyed subsidised or free meals from their employers. The government believe that there is an argument against the taxpayer continuing to subsidise employees for what is effectively a private expense.
Unlike day subsistence, the government can see that there is still a good case for retaining some tax relief for overnight subsistence (such as the cost of a hotel room, or an evening meal/breakfast when staying away from home overnight on a business journey), but intends to look at this issue in more detail at a later stage in the review.
Whilst we welcome the seemingly sensible changes to the existing business travel rules, we are very concerned that if the government gets its way, any sums you pay employees for meals taken in the day will become liable to tax and NIC, thus leaving your employees worse off than under the current rules. Consequently, your employees might expect, or even be contractually entitled to ask you to make up the shortfall.
The proposal is not yet a certainty, it’s just on the government’s wish list. We think this is one consultation that deserves a response, especially if yours is a business which potentially faces higher costs if the government’s proposal becomes law.
We would urge concerned employers to get in touch with us so that we may collate and forward your responses to HM Treasury on this discussion paper, by the deadline date of 16 December 2015.