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We are often fielded questions surrounding the correct treatment of business travel and subsistence costs when speaking to clients. Quite often, people have done their homework well and don’t have anything to worry about. However, when it does go wrong, the cost to a business and its employees can be significant. There are many rules surrounding the treatment of business travel and subsistence costs and so it’s not a wonder that people do occasionally get it wrong.
Employees are taxed on all income they receive from their employment. Pay, benefits and expense payments. However, tax relief is available where payments are exempt or if relief is available by way of a deduction. Where employees are obliged to incur costs for travelling in the performance of their duties, relief will be available. Care needs to be taken that this does not cover ordinary commuting or private travel.
Relief isn’t available for employees making their way to their permanent workplace every day from home. Determining what is ordinary commuting will be straightforward for most employees, but some employees will have more complicated situations. They may have a temporary workplace, they may do some work from home or they may be an agency worker whom has multiple destinations to attend, such as a nurse or domestic care worker. Directors and employees whom are employed by multiple employers within a group will also have additional considerations for the purposes of relief too. The detailed rules of each circumstance is outside the scope of this article, but each different situation has differing considerations and rules to adhere too, and this highlights the care that needs to be taken by employers in pulling together their travel policies.
Even when we understand what costs and journeys qualify for relief, we then need to consider the mode of transport used and the amount of relief available for each mode of transport. Also, we need to consider the consequences if employers pay a different amount to what has been incurred by the employee or approved by HMRC.
Most people will be aware of HMRC’s approved mileage rates for use of private vehicles (45p for 10,000 miles then 25p on the excess) but may not be aware of the rates for carrying fellow employee passengers (5p per mile, no relief if less than 5p paid), people using bicycles (20p per mile) or motorcycles (24p per mile). Subsistence costs for hotel accommodation, meals and parking when an employee stays away overnight are clearly allowable but there are other reliefs which may be less well know. For example, the incidental overnight expenses allowance which covers an employees costs for calls home, laundry and newspapers, for example. In those circumstances employees are entitled to relief on those items if the employer pays or reimburses no more than £5 for every night in the UK or £10 for every night spent outside the UK.
Generally speaking, no tax or national insurance will be reported if payments are simply to reimburse costs actually incurred. PAYE will also not be operated where an employer pays the costs directly (e.g. a hotel bill). If paying a round sum allowance it will form part of gross pay for PAYE and the employee will need to claim an appropriate deduction via HMRC themselves. If payments exceed costs actually incurred the full amount is taxed under PAYE and the employee will need to claim a deduction for actual costs incurred themselves via HMRC. For P11D purposes, unless the amounts are approved mileage, exempt or covered by a dispensation or PAYE Settlement Agreement (PSA), employers will need to report mileage payments in excess of approved amounts, reimbursed travel for trains and bus fares and other costs bought by the employer and used by an employee. The use of company cars also throws up many benefit in kind (P11D) and reimbursement issues and will also need to be considered as part of the overall travel and subsistence policy.
Dispensations can save employers and employees a lot of time and effort. PSAs can be agreed with HMRC to settle a single annual payment of Income Tax liability for certain expenses and benefits provided to employees where expenses and benefits are minor or irregular and it’s impractical to operate PAYE on or determine a P11D value.
Anyone looking at updating or formulating a company policy or just looking to clear up a few queries around this topic should not hesitate to get in touch.
Richard Askew, Director
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