Employee travel and subsistence

by Gavin Hooker

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With employees’ and directors’ P11d’s for 2021/22 due by 6 July 2022 it is timely to remind employers of the rules for travel and subsistence, particularly as HMRC have recently issued some updated guidance and useful examples of their interpretation of the law.

Tax relief for employee travel costs is available provided the journey isn’t ordinary commuting or private travel. Thus, amounts paid by the employer would not be taxable.

No relief is available for ordinary commuting, which is travel between home (or a place that is not a workplace) and a ‘permanent workplace’.

There are a number of criteria for determining if a workplace is temporary or permanent, but in general a workplace will always be a permanent workplace if the worker:

  • regularly goes to the same workplace in the course of a period of continuous work which lasts or is likely to last more than 24 months, or
  • regularly goes to the same workplace for all or almost all of the time for which the worker is likely to hold (or continues to hold) the same employment.

Where the journey qualifies for tax relief then necessary and reasonable subsistence costs associated with that journey would also qualify for tax relief, and if paid or reimbursed by the employer would not be taxable employment income.

Note that where expenses (such as travel and subsistence) are incurred wholly, exclusively and necessarily in the performance of the duties of the employment they no longer need to be reported on form P11d. A dispensation from reporting is no longer required but HMRC would expect there to be controls in place within the organisation to review and approve the expenditure.

Travel by workers operating via Personal service companies (IR35)

From 6 April 2016, new provisions changed the treatment of travel and subsistence expenses for workers providing their personal services to clients through employment intermediaries (IR35). Each engagement the worker undertakes that falls within IR35 is regarded as a separate and the worker’s travel and subsistence expenses are treated as if the worker was directly employed by the engager. This will mean that generally no relief will be given for home-to-work travel costs and associated subsistence. However, in certain circumstances, the new provisions are modified or disapplied.

Overarching contracts of employment where worker is supplied via an Agency

Temporary workers engaged under traditional employment agency contracts and caught by the agency legislation, are not entitled to relief for payment of travel and subsistence expenses, including home to work travel to a client’s work premises, as each assignment is deemed to be a separate employment and so each new place of work becomes a permanent workplace.

Many Employment Agencies have changed their business model and now put in place overarching contracts of employment to link the various assignments undertaken by workers supplying their services to various separate end-user clients at separate locations. The overarching contract of employment links together a series of separate assignments so that each location of each assignment becomes a temporary workplace. The worker effectively becomes a permanent employee of the employment agency under an overarching contract of employment.

If it is accepted that the contracts are overarching contracts of employment, then each new place of work will usually become a temporary workplace (subject to the “24 month rule”) and the individual’s travel and subsistence expenses would qualify for relief under the travel rules.

For details see: ESM5510 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)

Updated HMRC guidance on the scale of expenditure where accommodation and subsistence is paid for or reimbursed to employees

HMRC have recently updated their guidance and provided a number of examples setting out their interpretation of the law relating to reimbursed accommodation and subsistence costs and what they regard as reasonable. HMRC accept that under certain circumstances it is acceptable to rent a flat near the temporary workplace rather than stay in a hotel.

See: EIM31838 - Employment Income Manual - HMRC internal manual - GOV.UK (www.gov.uk)

The content in this blog is correct as at 6 May 2022.

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