Travel expenses - exempt or not?

Tax treatment

As an employer one of the onerous tasks you have is to decide if job-related expenses are exempt from tax and NI contributions. If they are, the expense can be paid or reimbursed to an employee tax and NI free with no reporting necessary to HMRC. Conversely, if an expense is not exempt you must treat the payment as either earnings or a benefit in kind. Note. Travel expenses encompass related costs such as overnight accommodation and meals. Whether a non-exempt expense is earnings, i.e. salary, or a benefit in kind depends on who’s liable for the cost.

Conditions for exemption

For a travel expense to be exempt it must be incurred by the employee:

• in the course of doing their job, e.g. a sales person whose role involves visiting customers etc.; or
• to visit a location that isn’t their normal place of work for the purpose of performing their job, e.g. an engineer attending a customer’s premises to repair a machine.

In the second instance it’s important to distinguish between travel to a temporary workplace and that which is “ordinary commuting”.

Ordinary commuting

Ordinary commuting is travel between your home and your “permanent place of work”. HMRC’s definition of permanent place of work is somewhere that isn’t a temporary workplace. That’s not very helpful. However, HMRC redeems itself by explaining that a temporary workplace is “somewhere the employee goes only to perform a task of limited duration or for a temporarypurpose.” The following examples illustrate the difference between a journey which is ordinary commuting and one which isn’t.

Example. Henry is a manager for Acom whose job requires him to visit several of the firm’s branches each week and carry out a range of duties. Acom pays Henry’s travel expenses. Each branch is a permanent workplace for Henry and therefore the travel expenses Acom pays are taxable and liable to NI.

Example. Jack also works for Acom. His normal place of work is its head office. Each year he has to travel to several branch offices to carry out an audit, for which Acom pays his costs. The trips are to a workplace that’s not Jack’s permanent workplace, to carry out the duties of his job. The expenses are exempt from tax and NI.

Travelling to and from home

Some old-school tax inspectors live in the past when the travel expenses rules were different. They might argue that any journey that starts or ends at an employee’s home is commuting and therefore the related expenses are taxable. However, the current rules aren’t concerned with where a journey starts and ends, only whether they relate to a journey that meets one of the two conditions we’ve already mentioned.

If you’re caught in an argument with an old-school tax inspector who won’t concede that a travel expense is exempt, direct them to HMRC’s own guidance