Updated guidance of the rules for travel and subsistence
With employees’ and directors’ P11ds 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 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 tax 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 there for 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 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.
- Generally speaking, travel and subsistence costs incurred by workers providing their services to clients via Personal Service Companies (IR35) are treated as if they are directly employed by the engager. This will mean that generally no relief will be given for home-to-work travel costs and associated subsistence.
- Many Employment Agencies have put in place overarching contracts of employment to link the various assignments undertaken by workers to various separate end-user clients at separate locations resulting in each location, of each assignment, becoming a temporary workplace. If it is accepted, then each new place of work should become a temporary workplace (subject to the “24-month rule” noted above) and the individual’s travel and subsistence expenses would qualify for relief.
Expenses (such as travel and subsistence) incurred wholly, exclusively, and necessarily in the performance of someone's employment no longer needs to be reported on form P11d. Also, a dispensation from reporting is no longer required but HMRC expects there to be controls in place
within the organisation to review and approve the expenditure.
For further information, refer to https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm5510.