The future of employee travel and subsistence

By Phillip McNeill, Head of Taxation (Practice and Small Business)

5 October 2015

Two recent papers, a consultation from HMRC and a discussion document from the Treasury, are set to change the landscape for tax relief on travel and subsistence. Phillip McNeill, Head of Taxation (Practice and Small Business) provides an update.

The HMRC consultation, Employment Intermediaries and Tax Relief for Travel and Subsistence, is primarily an anti-avoidance measure designed to curb the use of Umbrella companies with overarching contracts of employment (OACs). These have been used to artificially create 'temporary work places'; so that tax relief can be obtained under sections 338-339 Income Tax Earnings and Pensions Act 2003 (ITEPA 2003), on home to work travel and subsistence costs, for what is essentially ordinary commuting.

The HMRC proposals to overcome this, creates a very broad net which is likely to have impact far beyond the employment agencies. In essence, HMRC wants to deny tax relief for 'home to work' travel and subsistence wherever:

  • Personal service is required
  • There is an 'employment intermediary' – which could be a Personal Service Company (PSC) , partnership or individual, and
  • There is, or there is a right of, supervision, direction or control over the worker. (For examples of where this could apply, see HMRC's Employment Status Manual from page ESM2056 onwards)

This is to be achieved by treating every work engagement for these workers as a separate employment, so denying the application of the temporary workplace rules – where home to work travel and subsistence may be deductible.

This means that all PSCs which fall within IR35 are likely to be denied relief on travel and subsistence from a home office. Many other PSCs could also be caught.

What makes the proposals more dramatic is the inclusion of a transfer of liability option, where any firm using workers supplied via 'employment intermediaries' could face the bill, if travel and subsistence costs for a worker are incorrectly paid free of tax and National Insurance.

HMRC offers two options here, including a joint liability for any default in paying tax due on travel and subsistence on the part of the intermediary. In either case, the business which engages the worker will be responsible to confirm if the worker is under 'supervision, direction or control'.

The Treasury discussion paper is more open ended. It follows many of the earlier recommendations of the Office of Tax Simplification. Key proposals are:

  • To retain the current 'necessarily in the performance of the duties' test for employee business travel
  • Bringing in the concept of 'main base', instead of 'permanent workplace' and 'detached duty locations' instead of temporary workplace

As these changes are expected to result in a loss to the Exchequer, one suggested quid pro quo is the end of 'day subsistence', otherwise known as the tax-free lunch. The Treasury proposals do seem to contain a realistic chance of simplification, so compared with current 78 pages of guidance on 'employee travel', there is something to be welcomed.

After all, even with the loss of a tax-free lunch, there's still Section 264 ITEPA 2003 to cover the Christmas party.

Further Reading: ICAS response to HMRC consultation PDF [139 KB]


  • Tax

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