Are your, or your employees’, travel costs taxable?
Travel costs for employees and directors are always tax deductible for the company. The company includes such costs as an expense in its accounts and only pays tax on the profits which are stated after deducted all such expenses.
However, some travel costs paid for by your company may need to be included on payslips or as a taxable benefit in kind.
These notes apply to directors (including owner managers of companies) and any employees of the company – all referred to as “employees” below. References to “travel expenses” include all travel and associated subsistence and accommodation costs.
Travel expenses that are not taxable on the employee
Travel in performance of duties (ITEPA 2003, s. 337)
Travel in performance of an employee’s employment duties is not taxable. Such journeys include visiting a client’s premises on occasional irregular basis. For an example an IT engineer visiting various sites from their main workplace, as and when the need arises, would be travelling in the performance of duties.
This category does not include regular travel between home and work as this is before and after the performance of duties, rather than during the performance of duties.
Travel between workplaces (of the same employment) is not taxable on the employee or director only if attendance at both workplaces is a requirement of the work. If your company has more than one office and you are required to travel between them in order to carry out your duties then this would not be taxable.
Home is usually not counted as a workplace for this purpose. The only exception is if the nature of duties are such that they have to be carried out home (e.g. home is a bed and breakfast business, a farmhouse for the business of training dogs for the disabled in a home environment – per HMRC guidance).
Travel for necessary attendance at a temporary workplace (ITEPA 2003, s. 338)
Travel to a temporary workplace will not be treated as a taxable benefit for the employee. This is assuming that the employee is required to attend this temporary workplace to fulfil their employment duties (there must be a necessity to attend the temporary work place, not just a preference to do so).
An employee’s expenses of travelling to a customer’s place of business or to a supplier would not be taxable. The employee may travel there directly from home without first going to their normal place of work, or return directly home after the visit.
Note, travel from home or any non-workplace to a permanent workplace or permanent work area is not be covered by this rule even if home is also a workplace. Therefore travel from home to permanent workplace is taxable.
Consequence of travel expenses that are not taxable on the employee
No entries are required on payslips for the above types of travel.
As long as the company is reimbursing actual expenditure then no P11D entries are needed. If payments are made for round sums or an allowance is paid in advance then P11D will be required to show the expenses, which can also be claimed as deduction on P87 or self-assessment tax return.
Travel that is taxable on the employee
All other travel expenses paid by the company, including all travel to a permanent workplaces (except travel between workplaces), all commuting and all private travel are taxable on the employee or director and subject to national insurance.
If the employee pays for the travel and the employer reimburses this, the grossed up amount must be shown on payslips. There is full tax and NI on this amount. No P11D entry is required.
If the employee arranges the travel but the company pays the supplier directly, the amount must be shown as taxable on P11D but subject to national insurance (employees and employers) on payslips.
If the company arranges and pays for the travel then no entries needed on payslips. The amount is taxed by being recorded on P11D and Class 1A (employers only) NI is paid on P11D(b).
Workplaces attended to perform a task of limited duration and the task does not last (and is never considered likely to last) more than 24 months or most of the period of the employment are temporary workplaces.
An employee may work occasionally at one site for many years but the site may remain a temporary workplace because the visits are occasional. An employee may work full-time at a particular site for a period of up to two years and it can still be treated as a temporary workplace.
If an employee spends many hours per week for more than two years at a particular place, then it can no longer qualify as a temporary workplace. Also if attendance is for the most or all of the period of employment then it cannot be a temporary workplace, even if the duration is less than two years.
Usually your main place of work will be a permanent workplace.
It is possible to have more than one permanent workplace. Permanent workplaces include but are not restricted to:
Any workplace attended to perform a task that is not of limited duration; or
Anywhere that is attended more than 40% or work time, and will be so for more than two years (or most or all of the duration of the employment); or
Any work base at which tasks are allocated; or
Any place attended regularly to perform duties of employment but is not a temporary workplace.
HMRC define subsistence as “the reasonable and necessary cost of a meal/snack incurred by an employee whilst undertaking allowable business travel. The travel must occupy the whole or a substantial part of the working day encompassing the normal meal breaks.”
Obviously this definition is subject to some interpretation, However you should be happy that you could explain to HMRC how the subsistence claims you have made fall within this definition. There is a risk that HMRC could try to reclassify these as staff entertainment which would be taxable of the employees.
The above is general information only. If you are in any doubt about whether you or your employees may be taxable on any of the travel expenses paid by your company, then please contact us regarding specific advice.