Travel and subsistence payments, do they reflect changes within the organisation?

This has presented both opportunities and challenges in terms of where employees will be based in the future. For some, the return to the office has begun and normal work routines have been re-established, but we have seen an overwhelming number of organisations institute at least partially hybrid environments for some employees, if not fully remote positions. Where employees are going to be spending part of their time working from home, consideration will need to be given to the following:

• What are the employee’s duties?
• Where do they carry out their duties?
• Are they an area-based employee, responsible for the East of England for example?

Whilst technology has moved on and the ability to work remotely is now so much easier, the underlying tax and National Insurance rules associated with employee travel were last reviewed in 1998. Consequently, employers will need to consider the impact of the legislation as part of introducing any hybrid working arrangements:

1. Do any of the expenses associated with working from home incurred by the employee satisfy the ‘wholly, exclusively and necessarily in the performance of the duties’ conditions found in the legislation?
2. What are the income tax and National Insurance implications of travelling to the office?
3. What can be reimbursed to area-based employees?

Meeting the wholly, exclusively, and necessarily test can prove challenging as all parts of the test need to be fulfilled; specifically the costs need to be incurred in the performance of the duties and not simply to put the employee in a position to be able to carry out their duties. The strict application of the test was the reason why the special exemption was introduced for the reimbursement of home-office equipment during the pandemic.

For a tax relief claim to be substantiated it must be possible to demonstrate that it is a requirement of the employment that duties can be carried out at home and cannot be performed elsewhere. It is not sufficient to show that it is convenient, or even more efficient for them to be carried out at the employee’s home. Consequently, travel from the employee’s home to their normal place of work will be a cost of commuting and will not be allowable for tax purposes. The same restrictions will also apply to any journey which is substantially the same as the employee’s normal commute.

Area-based care workers

Many frontline care workers will continue to visit patients in their homes and the employee’s contract will recognise the catchment area they will work within.

For these area-based employees, any travel they undertake in their area will be allowable for tax purposes. Where the employee lives outside of their designated work area, travel into the that area will be considered a cost of commuting. This can lead to discrepancies in, for example, mileage claims which HM Revenue and Customs (HMRC) could challenge during the course of any compliance review.

One common error HMRC has challenged with area-based employees is the lack of accurate mileage records being maintained.

The rules are complicated, and employers need to ensure all internal staff policies and guidance clearly set out the following:

• The basis upon which all hybrid working arrangements will be applied
• Where the employee’s normal place of work will be
• Ensure all area-based employees know how and what travel costs they can reclaim

The following are a few questions any organisation should ask themselves:

• When did you last update your travel and subsistence policy documents?
• How many employees are working either at home or under a hybrid working arrangement?
• Who is responsible for approving travel and subsistence claims?
• When did you last provide employees with any training concerning travel and subsistence payments?
• When did you have your last HMRC visit?

For care organisations, the post-pandemic era will present a real opportunity to revise employee working practices, especially where they can work, helping to provide a better work-life balance. Where travel and subsistence policies are revised, it is important that consideration is given to the tax and National Insurance rules as HMRC can seek to recover tax and National Insurance for up to six years, together with interest and penalties where any compliance errors are identified.

For more information about travel subsistence, please contact Nick Bustin, Employment Tax Director.