The tax office is taking a greater interest in travelling expenses that have been claimed as an expense of employment, and we though, therefore, that it was time to look at the rules governing this topic. This is a complex topic. Therefore, this article is far from light reading!
Who does this article apply to, and when?
The following applies to all employees. It therefore covers:
- directors of one-man limited companies,
- spouses who work within a business,
- and anyone else who is paid under PAYE.
It does not cover anyone working for themselves as either a sole-trader or a partner in a partnership. We will cover those rules, perhaps, at a later date.
Technically, all payments made to an employee in respect of their employment are taxable, but tax relief can be claimed if the payments qualify for relief. The following rules do not, therefore, govern the amount of travelling expenses that can be provided by an employer to an employee. Rather it governs whether tax relief can be claimed on those expenses. Of course, if the expense payments fall wholly within the rules then there is no resultant tax liability.
It is not important what form the payments take. They may be expenses met by the employee and reimbursed by the employer. They may be payments made directly by the employer to a third party (ie a hotel) in respect of travel undertaken by an employee. They may be travel facilities (ie travel cards) provided to an employee by an employer. The rules apply equally to all travel expenses. The payments are taxable on the employee unless the expense meets the rules for deduction.
Travel expenses paid to employees often involve payments for subsistence. The rules below apply equally to these payments.
What payments do and do not qualify for tax relief?
Tax relief can never apply to the cost of Ordinary Commuting. We will look at this in more detail later.
With that exception, it applies to travelling costs incurred whilst carrying out the job, but not on travelling costs incurred in getting to the job. Therefore, to qualify for relief it must be necessary for the employee to attend at that particular place on that particular occasion to carry out the job. Relief only applies when the employee must be at that location to carry out the job. It does not apply to any travel where there is an element of choice.
If an employee has more than one employment then relief is not available for the cost of travelling between them. There are two exceptions to this rule:
- If both employments are for different employees within the same group, or
- If one of the jobs is carried out abroad.
So what is “Ordinary Commuting”?
Tax relief can never apply to the cost of Ordinary Commuting. This is defined as travel between:
- a permanent workplace, and
- home, or any other place which is not a workplace.
A workplace is a place where the attendance of the employee is necessary to carry out his duties.
A permanent workplace is a workplace where the attendance is:
- frequent, or
- follows a pattern, or
- is the workplace where the employee attends for all or almost all of the period of employment.
Therefore, an employee can have more than one permanent workplace, ie when they have two workplaces which they attend each week on a regular basis.
A temporary workplace is a workplace which the employee attends only to perform a task of limited duration or for a temporary purpose. This applies even if attendance is regular during that period of limited duration.
A special rule applies where the employee attends, or expects to attend, a workplace to a significant extent for a limited duration that exceeds 24 months. A significant extent is regarded by HMRC as being in excess of 40% of the employee’s total working time. This special rule prevents such a workplace being regarded as a temporary workplace even if it meets all other conditions. It is important to understand that this special rule does not define a temporary workplace but, instead, prevents a workplace which would, except for this rule, be regarded as temporary from being a temporary workplace.
I Work from Home. Can I Claim All Travelling Expenses?
We are not looking at the tax rules governing working from home in this article. Let us assume, therefore, that the home qualifies as a workplace. In these circumstances:
- relief is available for travel which an employee has to make between home and another permanent workplace as it is in the course of employment
- relief is available, as always, between home and a temporary workplace
- relief is not available for private travel which is:
- travelling between home and any other place where he does not have to be for work purposes, even if work is done there, or
- travelling between two places where he does not have to be for work purposes.
I Have Arranged an Appointment on the Way To Work. Can I Claim?
Travel from home to a permanent workplace is Ordinary Commuting and the cost, therefore, is not subject to relief. If instead you make an appointment to attend at a temporary workplace before attending at the permanent workplace (ie by making an appointment with a customer or supplier on the way to work) then this may change the nature of the journey from Ordinary Commuting, thus allowing relief to be claimed on the cost. However, to get relief the employee must be able to show that attendance at that particular place at that particular time was necessary to perform his duties, and neither the timing nor location was just a matter of convenience.
How much can I claim?
Subject to the above, the following rules apply
- Travel from Permanent Workplace to Temporary Workplace – Whole journey claimable
- Travel from Temporary Workplace to Permanent Workplace – Whole journey claimable
- Travel from Non Workplace to Temporary Workplace – Whole journey claimable
- Travel from Temporary Workplace to Non Workplace – Whole journey claimable
The distance from or positioning of the Permanent Workplace in relation to the Temporary Workplace or Non Workplace is in all instances not relevant, and this can lead to a number of strange situations.
For instance, the employee may travel from home (non workplace) to a temporary workplace, passing his permanent workplace on the way. If he does this without stopping then the whole journey is claimable. However, if he stops at the permanent workplace then this turns the journey into two separate journeys; the first journey from home to permanent workplace is ordinary commuting and not claimable, meaning that only the second journey from the permanent workplace to the temporary workplace is claimable.
Similarly, if the temporary workplace is situated between the employee’s home and his permanent workplace then stopping at the temporary workplace for a necessary visit and then continuing to his permanent workplace will create two journeys both of which are claimable.
The timing of the journey is also not relevant. If a task requires an employee to attend at his permanent workplace out of hours, and he travels from home to the permanent workplace to perform that task, then the fact that the timing is unusual does not change the nature of the journey from ordinary commuting.
However, this should be contrasted with an employee who is “on-call”. If the employee receives a call during the course of which he determines that an immediate visit to his permanent workplace is required then the journey is “in the course of performing his duties” and is therefore claimable. The critical difference here is that his work started when he received the phone call meaning that his home was now a temporary workplace.
Summary
The above hopefully shows how complex this topic can become. It has often been asked in this type of situation “how can the tax office prove….”. The answer is that they do not have to; the facts are decided on the balance of probability, and unless you keep sufficient records then this balance will most likely go in favour of HMRC. These records should not only record the time and cost of the journey but also the reason why it was undertaken and why it was necessary . Always remember that convenience is not the same as necessary; it must be shown that ANYONE doing that work MUST be at that particular location at that particular time in order to do it. Unless you can show that the work could not be done by someone in another location then you will have failed to show that the expense was necessarily incurred, and therefore claimable.