I was highly amused to see in the news that the National Audit Office is facing a bill from HM Revenue and Customs for penalties and interest of some ?8,000, in addition to tax of ?98,000. This arises from the taxable benefit of a chauffer-driven car to take the former Comptroller and Auditor General, Sir John Bourn, to and from work. That will teach the NAO to qualify their audit report on HM Revenue and Customs? 2007/08 accounts!



Employee's travelling expenses can be a nightmare for employers. It is generally known that travel from your home to your work is not an allowable expense (though not, it appears, to the NAO), but the detailed rules are fiendishly complicated and almost every ?Employer Compliance Review? conducted by HMRC turns up a few mistakes.

HMRC publish a book (the reference is 490) on the subject, which is more than 80 pages long, so it is quite a task to sum the rules up within the limits of this article, but let's see how we get on. I recommend a cold towel round the head while you read this.

In order to understand the rules, we need to learn a new language. There are a number of terms used in the legislation that have special meanings, and are a rich source of confusion. As this may be your first exposure to this new language, we will concentrate on four key phrases: ?Permanent Workplace?, Temporary Workplace?, ?Limited Duration?, and ?Temporary Purpose?.

Permanent Workplace

The most confusing is ?permanent workplace?. Travel from home to your ?permanent workplace? is not an allowable expense. In the case of an employee who lives in town A and works every day at an office in Town B, this is fairly easy to cope with, but the problems start when an employee works in more than one place. I am not talking about someone such as a heating engineer who visits numerous customers during the day, but rather an employee who works (say) three days a week in one office, and two days a week in another office of the same employer. If he does this on a regular basis, then HMRC are likely to say that both offices are ?permanent workplaces?, and so travel to either is not allowable.

Temporary Workplace

In order to get your travel expenses allowed, the travel must be to a ?temporary workplace? - and yes, you've guessed it - this too has a special meaning. A ?temporary workplace? is one to which an employee goes to ?perform a task of limited duration or other temporary purpose?.

Limited Duration

?Limited duration? is the easiest to define - it means ?less than 24 months?. If an employee who normally works in Town A is asked to work in Town B for 18 months, that will be a task of ?limited duration? and his travelling costs from home to Town B will be allowable, provided he returns to working in Town A at the end of the 18 month period.

There is however a nasty catch here, and one which bedevils certain seasonal industries such as the hotel trade. If the employment concerned is a fixed term contract, even if it is for less than 24 months, then if all or most of the duties are to be performed in one place, that is a permanent workplace and the travel expenses are not allowable. To take a common example, hotels hire temporary staff for the holiday season and (particularly those in remote locations) pay for their summer staff's return tickets to the hotel. Those tickets are a taxable benefit because the hotel is not a ?temporary workplace? for employees working there on fixed-term contracts.

The other aspect of ?limited duration? which causes even more confusion is the so-called ?40% rule?. If an employee spends 40% or more of his working time at a particular workplace, then that will be a ?permanent workplace? (unless the period during which this situation occurs is less than 24 months, as explained above).

Temporary Purpose

?Temporary purpose? is even more obscure. As we have seen, if you go regularly to a second workplace, say every Friday, then even though you are spending less than 40% of your working time there, it may still be a ?permanent workplace?.

The ?get out of jail card? in this situation is that you attend the second workplace for a ?temporary purpose?. HMRC's guidance on the meaning of this expression says:

?Where a visit is self-contained (that is, arranged for a particular reason rather than as part of a series of visits to the same workplace for the continuation of a particular task) it is likely to be for a temporary purpose.? (Paragraph EIM32150 of their ?Employment Income Manual?).

Like much HMRC guidance, that explanation sounds as though it means something until you try to apply it to the real world! HMRC's own examples of a ?temporary purpose? include a Safety Officer who visits a particular factory once a month to carry out a safety check (but surely, he is ?continuing? the task of ensuring the factory complies with the safety rules?), and a director who visits Farnham on the last Friday of each month to attend a board meeting (but again, is he not ?continuing? the task of running the company?).

It is an uncomfortable sensation arguing against HMRC's own examples of non-taxable expenses, and I will stop it immediately. You may have a headache by now, but at least you can say you know more about travelling expenses than the National Audit Office apparently did!

James Bailey

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