Understanding the UK's new travel and subsistence rules Understanding the UK's new travel and subsistence rules

Understanding the UK's new travel and subsistence rules
30 Nov 2014

Earlier this year the UK's Office of Tax Simplification (OTS) issued an interim report on expenses and benefits, which covered the travel and subsistence rules. While the current system is understood and works for many employees, for example those who attend the same workplace each day, complexities arise around employees who are required to travel regularly to undertake their duties is a more common feature of today’s working patterns.

The report highlights the following as presenting particular difficulties:

• the meanings of ‘workplace’, temporary and permanent
• the ‘24 month rule’
• journeys which are substantially the same • homeworkers.

The good news is that HMRC has taken on board the OTS request to update the HMRC Guidance booklet 490 to make it more current. This work is underway and is planned for April/ May 2015. 

The OTS asked for a document that is more user friendly with scenarios and examples that recognise current working practices eg nonexecutive directors, managers working across sites, construction industry projects. This is fantastic news and I hope HMRC embrace the request and provide employers with good practical examples of whom the tax rules apply to.

What are the basic travel and subsistence rules?

It should be noted that the rules for subsistence currently follow the travel rules. If the business journey is allowable for tax purposes then generally so is the subsistence cost, unless there are issues around excessive expenditure, dual-purpose trips and round sum or benchmark allowances. In order to understand the current rules you need to consider the interaction between permanent and temporary workplaces and what is meant by ordinary commuting.

Even if full tax and national insurance relief is due, the expenses are required to be reported at the year-end on forms P11D, unless a valid P11D dispensation is in place.

Permanent workplace

A place at which an employee works is a permanent workplace if he or she attends it regularly for the performance of the duties of the employment.

It is usually clear whether or not a place is an employee’s permanent workplace and, therefore, whether a journey to that place is considered ordinary commuting. It is possible for an employee to have more than one permanent workplace at the same time.

Travel to/from a permanent workplace is treated as private travel, not business, and therefore tax relief is not due on any related costs paid or reimbursed by the employer.

The exception to this rule is where travel is between one permanent workplace to another permanent workplace ie whilst performing the duties of employment during the working day.

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. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.

This means if an employee spends a significant amount of time at that location (this is defined by HMRC as more than 40 per cent of total time) the location can only be a temporary workplace where the attendance does not exceed 24 months (the limited duration rule).

If it is known at the outset that the 24-month limit will be exceeded, or it becomes known before the end of the 24-month deadline, then tax relief does not apply from that date onwards.

purpose and not, for a series of visits in relation to a continuous task (the temporary purpose rule). This is one area that causes great confusion.

Ordinary commuting

For most employees, ordinary commuting is the journey they make most days between their home and their permanent workplace. A taxable benefit will normally arise where the costs of ordinary commuting are paid for or reimbursed by the employer, or where travel facilities are provided.

However, no tax is charged in the following circumstances:

• where an employer provides a works bus that is available to employees generally and has a seating capacity for at least nine people
• where an employer subsidises a specific public transport route that takes employees to and from work, regardless of whether employees pay the full fare, a reduced fare or travel free
• where the employee works late (until at least 9pm) and is provided with a taxi home, provided that this happens less than 60 times a year, there is no pattern and there is no public transport available or it would be impractical for the employee to use it.

However, for some employees the position is more complicated. For example, 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.

This rule generally applies where the journey is in the same direction, or on the same route and is less than ten miles extra each way than the normal commute. This is one area that is rarely seen explained in an employer’s travel and expenses policy.

Working from home

Employees  often work from home because the nature of the job requires them to do so or because it is convenient.

Only where it is an objective requirement of an employee’s duties to carry out substantive duties at the home address will HMRC accept that the home is a workplace for tax purposes.Therefore tax relief may be due on travel from home.

HMRC adopts a harsh line when looking at those claiming home as a permanent workplace and rarely accepts that working from home is an objective requirement of the job. Where HMRC has accepted the point employees who work from home are entitled to relief for the costs of travel to a temporary workplace.

Additional rules to consider

There are other special rules to consider in addition those mentioned already, these cover areas such as international trips, area based and depot-based employees together with emergency call outs.

What should employers do?

We advise employers to:

• Consider feeding into HMRC’s examples of problem areas
• Look out for the new guidance due for release in April/May 2015
• Take a moment to stand back and review the guidance given to employees on claiming or charging travel and subsistence expenses to ensure that adequate information is provided and that the amount is captured and coded correctly and the correct tax treatment can be applied.

Further information

HMRC has published comprehensive guidance in Booklet 490: Employee travel - a tax and National Insurance contributions guide which explains the topics covered in detail, including several practical examples

HMRC’s employment income manual
• The OTS report

By Susan Ball

Earlier this year the UK's Office of Tax Simplification (OTS) issued an interim report on expenses and benefits, which covered the travel and subsistence rules. While the current system is understood and works for many employees, for example those who attend the same workplace each day, complexities arise around employees who are required to travel regularly to undertake their duties is a more common feature of today’s working patterns.

The report highlights the following as presenting particular difficulties:

• the meanings of ‘workplace’, temporary and permanent
• the ‘24 month rule’
• journeys which are substantially the same • homeworkers.

The good news is that HMRC has taken on board the OTS request to update the HMRC Guidance booklet 490 to make it more current. This work is underway and is planned for April/ May 2015. 

The OTS asked for a document that is more user friendly with scenarios and examples that recognise current working practices eg nonexecutive directors, managers working across sites, construction industry projects. This is fantastic news and I hope HMRC embrace the request and provide employers with good practical examples of whom the tax rules apply to.

What are the basic travel and subsistence rules?

It should be noted that the rules for subsistence currently follow the travel rules. If the business journey is allowable for tax purposes then generally so is the subsistence cost, unless there are issues around excessive expenditure, dual-purpose trips and round sum or benchmark allowances. In order to understand the current rules you need to consider the interaction between permanent and temporary workplaces and what is meant by ordinary commuting.

Even if full tax and national insurance relief is due, the expenses are required to be reported at the year-end on forms P11D, unless a valid P11D dispensation is in place.

Permanent workplace

A place at which an employee works is a permanent workplace if he or she attends it regularly for the performance of the duties of the employment.

It is usually clear whether or not a place is an employee’s permanent workplace and, therefore, whether a journey to that place is considered ordinary commuting. It is possible for an employee to have more than one permanent workplace at the same time.

Travel to/from a permanent workplace is treated as private travel, not business, and therefore tax relief is not due on any related costs paid or reimbursed by the employer.

The exception to this rule is where travel is between one permanent workplace to another permanent workplace ie whilst performing the duties of employment during the working day.

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. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.

This means if an employee spends a significant amount of time at that location (this is defined by HMRC as more than 40 per cent of total time) the location can only be a temporary workplace where the attendance does not exceed 24 months (the limited duration rule).

If it is known at the outset that the 24-month limit will be exceeded, or it becomes known before the end of the 24-month deadline, then tax relief does not apply from that date onwards.

purpose and not, for a series of visits in relation to a continuous task (the temporary purpose rule). This is one area that causes great confusion.

Ordinary commuting

For most employees, ordinary commuting is the journey they make most days between their home and their permanent workplace. A taxable benefit will normally arise where the costs of ordinary commuting are paid for or reimbursed by the employer, or where travel facilities are provided.

However, no tax is charged in the following circumstances:

• where an employer provides a works bus that is available to employees generally and has a seating capacity for at least nine people
• where an employer subsidises a specific public transport route that takes employees to and from work, regardless of whether employees pay the full fare, a reduced fare or travel free
• where the employee works late (until at least 9pm) and is provided with a taxi home, provided that this happens less than 60 times a year, there is no pattern and there is no public transport available or it would be impractical for the employee to use it.

However, for some employees the position is more complicated. For example, 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.

This rule generally applies where the journey is in the same direction, or on the same route and is less than ten miles extra each way than the normal commute. This is one area that is rarely seen explained in an employer’s travel and expenses policy.

Working from home

Employees  often work from home because the nature of the job requires them to do so or because it is convenient.

Only where it is an objective requirement of an employee’s duties to carry out substantive duties at the home address will HMRC accept that the home is a workplace for tax purposes.Therefore tax relief may be due on travel from home.

HMRC adopts a harsh line when looking at those claiming home as a permanent workplace and rarely accepts that working from home is an objective requirement of the job. Where HMRC has accepted the point employees who work from home are entitled to relief for the costs of travel to a temporary workplace.

Additional rules to consider

There are other special rules to consider in addition those mentioned already, these cover areas such as international trips, area based and depot-based employees together with emergency call outs.

What should employers do?

We advise employers to:

• Consider feeding into HMRC’s examples of problem areas
• Look out for the new guidance due for release in April/May 2015
• Take a moment to stand back and review the guidance given to employees on claiming or charging travel and subsistence expenses to ensure that adequate information is provided and that the amount is captured and coded correctly and the correct tax treatment can be applied.

Further information

HMRC has published comprehensive guidance in Booklet 490: Employee travel - a tax and National Insurance contributions guide which explains the topics covered in detail, including several practical examples

HMRC’s employment income manual
• The OTS report

By Susan Ball