EXPENSES - 22.04.2021

Home-to-work travel during lockdown

Two of your employees, working from home because of the pandemic, visited the office each week to check security and collect post that hadn’t been redirected. You paid their travel costs but do you need to report this to HMRC?

Commuting costs

Deciding the correct tax and NI treatment of travel expenses is simple in theory, especially for journeys made by an employee or director between home and their workplace. Legislation describes such journeys as “ordinary commuting”. The cost of ordinary commuting, or a journey which is “substantially ordinary commuting”, is not a tax-deductible expense. As a result, where you pay for or reimburse an employee’s commuting costs it’s taxable either as a benefit in kind or as earnings. However, the tax position gets trickier if the employee’s home is also their workplace.

What’s a workplace?

The rules define a workplace as “a place at which the employee’s attendance is necessary in the performance of the duties of the employment” . By this definition, if an employee carries out some or all of the duties of their employment at home, HMRC can’t argue that it is not a workplace. Normally, the cost of travel between workplaces, say between branch offices, is tax deductible but there’s a catch.

Trap. The rules say that travel between home (even where it’s a workplace) and a “permanent workplace” is ordinary commuting. A permanent workplace is one “the employee regularly attends in the performance of the duties of the employment” , but not temporary workplaces, such as a customer’s premises that an employee visits to do some work.

Tip. On the face of it the cost of travel between home, whether or not it’s a workplace, and an employee’s normal workplace can’t be tax deductible. But the good news is that HMRC accepts that it is deductible in the right circumstances.

Travel in performance of duties

The legislation includes another rule which says that travel expenses which an employee is “ obliged to incur” that are also “necessarily incurred in the performance” of their duties are tax deductible. In plain English this means that if an employee has to spend money to get from A to B for work purposes at the request of their employer, a tax deduction is allowed. Where the employer pays for the travel it’s also tax and NI exempt.

HMRC gives this example.“An employee works in his employer’s office for 4 days every week but the requirements of the job dictate that he must work at home every Friday. It is accepted that his home is a workplace on Friday. His travel from home to his employer’s office on Monday to Thursday is ordinary commuting because those premises are a permanent workplace. His travel costs on those days are not deductible. If he is unexpectedly required to visit the employer’s premises on Friday to carry out the duties of his employment his travel costs are deductible under Section 337 ITEPA 2003. On that day he is travelling between two workplaces.” (See The next step ).

The key factor

For home-to-work travel costs to be tax deductible/exempt, the employee must be required by their employer to work from home. If they choose to work from home and their employer merely agrees, there’s no tax deduction and payments by the employer to cover the costs are taxable.

For links to the legislation and HMRC’s guidance manuals, visit https://www.tips-and-advice.co.uk , Download Zone, year 21, issue 14.

You do not need to report the payments to HMRC, and they aren’t taxable or liable to NI, if you require an employee to work from home and they have to travel between home and another workplace, e.g. the office or other premises they regularly attend for work.

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