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The rules for claiming travel expenses for employees taking business journeys
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.
Section 337 ITEPA 2003 permits relief for travelling expenses necessarily incurred in travelling in the performance of the duties of the employment.
Section 338 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 by Section 339(1) ITEPA 2003 to mean 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:
An employee works for a firm of estate agents that has branches across the West Midlands. She lives in Wolverhampton and works at the branch in Coventry. She has a number of business phone calls to make that can be made at any time during the day. Her employer tells her to stop off at the Birmingham branch on the way to her permanent workplace in Coventry in order to make some of the phone calls.
No deduction is due for the cost of her travel from Wolverhampton to Birmingham. Her ordinary commuting journey does not become a business journey because she stops off at the Birmingham branch. The Birmingham branch is not a workplace on this occasion because her visit is not an objective requirement of the duties of her employment. Similarly, she is not entitled to relief for the cost of her journey from Birmingham to Coventry. Birmingham is not a workplace on this occasion and so the travel to her permanent workplace in Coventry is ordinary commuting.
Ordinary commuting
No deduction is due under section 338 ITEPA 2003 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 by section 338(3) ITEPA 2003 to mean 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 490: (2020) – Employee travel – A tax and NICs Guide for Employers) is that the intention of s. 339(7) is only to deny relief 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 particular 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 in the course of 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 as defined by s339(3) ITEPA 2003.
A period of continuous work is defined by section 339(6) ITEPA 2003 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 particular 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 of 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 was 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.