Travel costs incurred by employees and directors are tax-deductible for the company. These expenses are recorded in the company’s accounts and reduce the taxable profit, meaning the company pays tax only on profits after such costs have been deducted.
However, certain travel expenses paid by the company may need to be reported on employee payslips or treated as a taxable benefit in kind, depending on the nature of the travel. You may want to avoid paying such travel costs so that these do not need to be reported.
These guidelines apply to all employees of the company, including directors and owner-managers. The term “travel expenses” refers to all costs associated with travel, including subsistence (meals and refreshments) and accommodation.
Travel expenses not taxable on the employee
Certain travel expenses reimbursed by the company are not considered taxable benefits for employees or directors. These fall under specific provisions of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
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 (eg. 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 workplace, 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 covered by this rule, even if home is also a workplace. Therefore, travel from home to permanent workplace is taxable.
Consequences of non-taxable travel expenses
- 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
- You can also use HMRC’s scale rates, or it is possible to agree bespoke rates with HMRC. There are other conditions which need to be met if using these
Taxable travel expenses for employees
- All other travel expenses paid by the company are taxable on the employee or director if they fall into any of the following categories:
- Travel to a permanent workplace (except travel between multiple workplaces)
- Commuting to or from home to work
- Any form of private travel
These payments are subject to Income Tax and National Insurance Contributions (NICS).
Treatment based on how travel is paid
- Employee pays and is reimbursed by employer
- The reimbursed amount is treated as taxable earnings
- It must be grossed up and shown on the employee’s payslip
- Subject to full Income Tax and NICS
- No P11D entry is required. Already taxed and declared through PAYE
- Employee arranges travel; employer pays supplier directly
- The cost is treated as a benefit in kind
- Must be reported on the employee’s P11D
- Subject to employee and employer NICS, which should be reflected on the payslip
- Employer arranges and pays for travel
- No entries are required on the employee’s payslip
- The cost is reported on the P11D
- Subject to Class 1A NICS (employer only), payable via the P11D(b)
Workplaces
Temporary workplaces
- 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.
Permanent workplaces
Your main place of work will usually 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
Subsistence
“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 on the employees.
If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.
