In what circumstances are travel expenses for commuting journeys exempt from tax? (Part 1)

There are a number of statutory exemptions that allow employers to reimburse an employee’s commuting or private travel expenses.  The exemptions apply to very specific situations and there are conditions that must be met in each case.

The specific situations are:

• travel between different employments within the same group of companies
• transport provided for disabled employees
• transport home after late night working
• transport home when car-sharing arrangements break down
• travel and subsistence during public transport strikes
• travel and subsistence for offshore oil and gas workers
• travel provided by works transport services
• shopping trips using works transport services.

These different situations will be explained in coming FAQs.  This article looks initially at the meaning of “commuting” and “private travel” to clarify the types of journeys for which, in the absence of one the statutory exemptions listed above, any payments by the employer would be taxable.  Such payments are taxable under PAYE, meaning that, if the intention is for the employee to receive the amount incurred for the commuting journey, the payment must be grossed-up for tax and NICs before adding it to gross pay.

The following notes describe the way in which the legislation identifies travel expenses that qualify for tax relief.  Unfortunately some aspects of the rules are difficult to understand, particularly the definition of a “temporary workplace”.

Tax relief is available for travel expenses reimbursed by the employer if the employee incurs and pays them because of the employee’s “necessary attendance” at a workplace.

However, this necessary attendance rule does not apply to expenses incurred for travel that is, or is substantially, “ordinary commuting” or “private travel”:

• “ordinary commuting” is travel between
  • the employee’s home and a “permanent workplace”, or
  • a place that is not a workplace and a permanent workplace
• “private travel” is travel between
  • the employee’s home and a place that is not a workplace, or
  • two places neither of which is a workplace.

A “workplace” is a place the employee must attend in order to perform the duties of the employment.

A “permanent workplace” is a place that the employee must attend to perform the duties of the employment but is not a “temporary workplace”.  An employee may have more than one permanent workplace.

A “temporary workplace” is a place that the employee attends in the performance of the duties of the employment:

1. for the purpose of performing a task of “limited duration”.  A task is not of “limited duration” if the employee’s attendance during a period of “continuous work” at that place

• • is lasting for more than 24 months, or
  • comprises all or most of the period for which the employee is likely to hold the employment.

A period is a period of “continuous work” at a place if, over the period, the duties of the employment are performed to a significant extent at the place.  HMRC interprets “significant” as meaning that at least 40% of the employee’s working time is spent continuously at the workplace.

2. for some other “temporary purpose”: Attendance at a workplace may be for a “temporary purpose” if the task to be performed is self-contained, i.e. it is completed at each visit, rather than being part of an on-going project.  Identifying a workplace as a place that an employee attends for a “temporary purpose” allows the workplace to be considered temporary, even though the employee may attend regularly and the work that is done is not of limited duration.

These rules create a number of special situations that must be considered carefully:

• Journeys do not qualify for relief if
• they are made by the employee’s choice, or they are not required contractually
• the business purpose is merely incidental to the private purpose, or is made substantially for private rather than business purposes, or
• the journey to a temporary workplace is substantially the same as the employee’s ordinary commuting journey.
• A fixed-term appointment is not considered to be “of limited duration” and does not qualify for tax relief.
• An agency worker may only have tax relief on travel between clients’ sites on the same day.
• Some employees have no single site that can be called their permanent workplace and, instead, their workplace is defined by reference to a geographical area.
• Where an employee attends a depot to be allocated tasks to be performed elsewhere, the depot is the employee’s permanent workplace.
• An employee’s home can be a permanent or temporary workplace if duties must contractually be performed there.
• If an employee is on stand-by or is called out to attend work, the journey is nevertheless ordinary commuting.

More detailed coverage of these rather complex rules, together with many worked examples, is provided in HMRC’s booklet 490 Employee Travel: A tax and NICs guide for employers.

As a basic guide, however, the following example may be helpful.

Example: Adam lives at location A but also stays frequently with his parents at location B.  He works in an office at location C (his permanent place of work) but occasionally visits the offices of a client at location D (a temporary place of work).

The journeys between Adam’s home or parents’ home and his permanent workplace are all “commuting” or “private” journeys and do not qualify for tax relief.

The journeys between Adam’s home or parents’ home and the temporary workplace are business journeys and qualify for tax relief.

The journeys between his permanent workplace and temporary workplace are also business journeys and qualify for tax relief.

The statutory exemptions listed initially allow the employer, if certain conditions are met, to make payments for commuting journeys to be paid without creating a tax liability.  These exemptions will be explained in coming Employer FAQs.