Travel and subsistence
The rules concerning the tax relief for travel and subsistence are extremely complicated, which partly reflects the different ways employees are now able to work.
Employers need to consider several factors to help determine the treatment of those costs for tax and National Insurance purposes.
Travel costs incurred in the performance of an employee’s duties will qualify for income tax relief if:
- The employee is obliged to incur and defray travel expenses as the holder of an employment
- The expenses are necessarily incurred ‘in the performance of the duties of the employment’
It should be noted that ‘ordinary commuting’ and ‘private travel’ restrictions do not apply to travel expenses incurred in the performance of the employee’s duties. If the travel being incurred meets the above two conditions, then the ordinary commuting rules can be ignored. In practice, there are two main types of journey that qualify as being incurred in the performance of the duties:
- Travel between two workplaces
- Travel which is integral to the employment
Consideration will need to be given as to whether the journey being undertaken by an employee is in fact ‘ordinary commuting’.
The term ‘ordinary commuting’ means what it implies, being the cost of travel from home to work and back again. The legislation specifically states that ‘ordinary commuting’ is the cost of travel (in either direction) between a permanent workplace and either:
- The employee’s home
- A place that is ‘not a workplace’
HMRC have provided the following guidance as it relates to ‘ordinary commuting’ and ‘private travel’:
- HMRC are unlikely to argue that a journey to or from a temporary workplace is ‘substantially ordinary commuting’ if the journey is ten miles or more each way than the ordinary commuting journey. This will be the case when part of the journey covers the same route
- Travel between home and a temporary workplace which involves less than ten extra miles in each direction will not be treated as substantially ordinary commuting
- HMRC’s application of the rules will depend on the facts of the particular case
- If the journey starts from the same place as an ordinary commuting journey and ends near to the normal permanent workplace then it is likely to be treated as substantially ordinary commuting, even if a different route is followed
- A journey that is similar in length but that is a different direction will not be treated as substantially ordinary commuting
- The mere fact of using a different type of transport will change the nature of the journey
- A journey made outside the employee’s normal working hours is treated in the same way as one made during normal working hours
- A journey that is really for private purposes but that has a business element added on because it is convenient to do so will remain a private journey
- A journey that is genuinely dictated by business reasons, but includes private element added to it because it is inconvenient to do so, may well remain a business journey for income tax purposes.
Permanent and temporary workplace
A workplace is defined as ‘a place at which the employee’s attendance is necessary in the performance of the duties of the employment’. The emphasis is therefore placed upon the purpose, or reason for the attendance at the workplace rather than the journey which is undertaken to get there.
Somewhere is considered a permanent workplace where all three of the following are true:
- The employee attends it regularly
- The employee attends it ‘in the performance of the duties of the employment’
- It is not a ‘temporary workplace’
Consideration will need to be given to all of the facts associated with the employee working at the location. The same will also apply when considering whether somewhere is a temporary workplace.
To qualify as a temporary, all of the following conditions have to be met:
- It must be a place which the employee attends in the performance of the duties of the employment
- The employee must attend it either:
- For the purpose of performing a task of limited duration; or
- For some other temporary place
- It must not be treated as a permanent workplace.
The situation has become more complicated during the COVID-19 pandemic with many employees working from home.
Working from home
HMRC are of the opinion that where employees work from, this is a matter of personal choice rather than a requirement of the role.
Employers need to consider why is the employee working from home? Is it a requirement of the employer and the role that the employee works from home? Is the employee responsible for a particular region? Furthermore, could any employee perform the role at home? Where this is not the case this is an area which will come under scrutiny from HMRC.
Whilst HMRC have not published any significant concessions where employees are working from home to support employees who are working from home and need to purchase home office equipment as a result of the COVID-19 outbreak, a temporary tax exemption and National Insurance disregard will come into effect to ensure that the expense will not attract tax and NICs liabilities where reimbursed by the employer. The expenditure must meet the following two conditions to be eligible for relief:
- That equipment is obtained for the sole purpose of enabling the employee to work from home as a result of the COVID-19 outbreak
- The provision of the equipment would have been exempt from income tax if it had been provided directly to the employee by or on behalf of the employer
The exemption is a temporary measure and will have effect from 16 March 2020 (the date the Government recommended working from home) until the end of the 2020/21 tax year.
Employers need to review their existing policies and procedures especially
- Establish a clear policy for each of different types of situation
- Undertake periodic reviews of employees, including working arrangements and the level of expenses claimed
- At least once a year review your expenses policy to ensure it reflects how the business operates
- Ensure a rigorous review of expense claims and authorisation processes are in place
At haysmacintyre we can help you review your existing policies and practices and make recommendations to reflect your working practices.
For further information please contact Nick Bustin, Director of Employment Tax at 07515 795186 or via email at email@example.com.