Travel expenses for employees for making business journeys

This article is a summary of the main aspects of the HMRC Guide 490 on Employee travel and income tax and National Insurance considerations for employers.

When employees are required to travel for work, understanding which travel expenses can be claimed is essential for both employers and staff. Correctly distinguishing between temporary and permanent workplaces ensures that travel costs are claimed appropriately and in compliance with tax regulations.

Employee may claim for travelling expenses necessarily incurred in travelling in the performance of the duties of the employment.

This applies to expenses that are attributable to the employee’s necessary attendance at a workplace in the performance of the duties of the employment but excluding expenses of ordinary commuting or private travel. These phrases are then subject to a series of statutory definitions of which the most important are outlined below.

Necessary attendance

A workplace is defined as a place at which the employee’s attendance is necessary in the performance of his or her duties. This means that a deduction for the cost of travel to a temporary workplace will only be due where the employee can demonstrate that his or her attendance at that place was necessary on that occasion to perform the duties of that employment.

The strict test for a deduction is that the travel must be dictated by the duties of the employment. HMRC gives the following example:

Ordinary commuting

Employee cannot receive payment, without it being taxable, for the cost of ordinary commuting. Ordinary commuting is the journey they make most days between their home and their permanent workplace. The term ‘ordinary commuting’ is defined as travel between a permanent workplace and home, or any other place that is not a workplace. Ordinary commuting includes travel that is substantially ordinary commuting.

Any workplace that is a temporary workplace is not a permanent workplace.

Temporary workplace

Travel to a temporary workplace is not ordinary commuting and so the cost is deductible. A temporary workplace is somewhere the employee goes only:

• to perform a task of limited duration or

• for a temporary purpose.

An employee may attend a workplace regularly and perform duties there that are not of limited duration without that workplace becoming a permanent workplace, provided that the purpose of each visit is temporary.

Where a visit is self-contained, that is, arranged for a particular reason rather than as part of a series of visits to the same workplace for the continuation of a particular task, it is likely to be 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.

Any workplace that is a temporary workplace is not a permanent workplace, so the travelling cost is allowed, but ordinary commuting includes travel that is substantially ordinary commuting.

HMRC’s general policy view, as set out in their Guide 490: (2020) – Employee travel – A tax and NICs Guide for Employers, is that the intention is to not allow for the payment of tax-free travel claims where the journey is very similar to the employee’s normal commute, or where there is a perceived abuse in attempting to obtain tax relief by changing what is essentially a private journey into a business journey.

It is intended to be ‘a common-sense rule’. In practice, HMRC states that it will not normally seek to argue that a journey is substantially the same where the extra distance involved is 10 miles or more. However, this should also be taken in context; for example, a journey of exactly the same distance, or possibly shorter, than the normal commute may still be substantially different to the normal commute if it is in an entirely different direction. HMRC concedes that the application of the rule will depend upon the circumstances of the case.

The limited duration: the 24-month rule

A workplace that an employee attends for the purpose of performing a task of limited duration or for some other temporary purpose is a temporary workplace. But there is a further rule that prevents a workplace from being a temporary workplace where an employee attends it during a period of continuous work that lasts, or is likely to last, more than 24 months. Where this further rule applies the workplace will be a permanent workplace. This rule does not apply unless the workplace is capable of being a temporary workplace.

A period of continuous work is defined as a period over which the duties of the employment are performed to a significant extent at that place. To apply this rule, you should treat duties as performed to a significant extent at any workplace if the employee spends 40% or more of his or her working time at that place.

The test is whether the employee has spent, or is likely to spend, 40% or more of his or her working time at that workplace over a period that lasts, or is likely to last, more than 24 months. Where that is the case, the workplace is not a temporary workplace and so it is a permanent workplace. Travel between that place and home will be ordinary commuting and so is not deductible.

Fixed-term appointments

A period of attendance at a workplace for a limited duration does not make that place a temporary workplace if the employee attends in the course of a period of continuous work that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment. In these cases, the 24-month rule is overridden and the workplace is a permanent workplace.

The depots and bases rule

Where an employee regularly attends a workplace because:

• it is the base from which he or she works, or

• it is the place at which he or she is routinely allocated tasks

…that workplace is deemed to be a permanent workplace and not a temporary workplace. Attendance should not be regarded as being of a limited duration or for a temporary purpose.

This does not mean that every place from which an employee works or at which he or she is allocated tasks must be a permanent workplace. A depot or similar workplace will be a permanent workplace only if:

• the employee attends it regularly and

• the main reason the employee goes there is because it is the place from which he or she works or at which he or she is routinely allocated tasks.

However, where an employee regularly attends a workplace to be routinely allocated tasks while there, that workplace will be a permanent workplace even if certain tasks are allocated to the employee elsewhere.

The area rule

Some employees do not have a single site as a permanent workplace but instead have an employment for which their duties are defined by a particular geographical area. For these employees, the whole of that geographical area is treated as their permanent workplace where all the following conditions are met:

• the employee has no single place that is his or her permanent workplace and the employee attends the area regularly; and

• the duties of the employee’s employment are defined by reference to that area; and

• if the area were to be treated as a workplace it would be a permanent workplace.

Both employers and employees should keep thorough records of travel, subsistence, and accommodation costs, and regularly review assignments to determine whether a workplace remains compliant with the legislation.