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Paying for "Commuting"? Exempt or not?

Hybrid office/home roles - which travel payments should be subject to income tax / NI

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Our company has grown rapidly during the past 18 months and the shift to home working and our desire to get people to return to the office is creating a few issues.

Am I applying the correct tax treatment for each of the following scenarios? 

1) We have employees contracted to work from home (they live beyond commuting distance of the head office) - if they travel to head office I have classfied this as exempt.

2) We have employees within commuting distance who are contracted to work from the head office but they are only expected to attend one day a week - I have classified the first day of travel per week as taxable (as it is a regular attendance) and ad hoc additional days as exempt.

3) We have employees within commuting distance who are contracted to work from the head office but they are only expected to attend on an ad hoc basis - I feel they should be contracted to work from home and their travel would then be exempt.

Am I getting this right?  Is there any reason someone cannot be classed as working from home from an HMRC perspective? I've read as much guidance as I can but in this hybrid world of home/office working I'm struggling to come up with an easy answer.

One curve ball I read implied that sometimes HMRC classes "choosing" to work from home as a personal choice and then all "commuting" is taxable?  How do they define whether it is a "choice"?

It's making my head spin...

Replies (25)

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By David Ex
26th Aug 2021 11:19

ElsBels41 wrote:

Our company has grown rapidly during the past 18 months

It's making my head spin...

Rapidly expanding business + tax issues ->

If you don’t have an accountant, appoint one as a matter of urgency. You could be missing any number of risks and opportunities far costlier than a good professional adviser.

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Replying to David Ex:
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By ElsBels41
26th Aug 2021 11:29

I am an accountant but not a tax/BIK expert. We also pay for an external accountant and I have asked this question - the party line is that it's all taxable but I don't feel that's the case in all scenarios. This isn't a matter of not wanting to pay for an expert opinion just that experience tells me some may take a different view on this - I should have made that more clear. Apologies :-)

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Replying to ElsBels41:
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By David Ex
26th Aug 2021 11:44

ElsBels41 wrote:

the party line is that it's all taxable but I don't feel that's the case in all scenarios.

The obvious thing to do is to ask them to explain their views by reference to HMRC guidance and legislation.

There are (unsurprisingly for a question posted on a forum) any number of pieces of information which might be relevant to the tax treatment but which you haven’t (for obvious reasons) detailed.

If your professional advisers can’t give explanations which you understand and trust and then refuse to explain their opinions, you need to change advisers.

No-one on here knows enough about your business and employment arrangements to give an informed opinion without covering the multitude of permutations that arise depending on the assumptions made about the detail you can’t (for various reasons) give.

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Replying to David Ex:
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By ElsBels41
26th Aug 2021 11:52

Thanks for taking the time to reply again David - I'll indeed go back to our accountant and ask which parts of the legislation supports their view vs mine.

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Replying to ElsBels41:
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By David Ex
26th Aug 2021 11:57

ElsBels41 wrote:

Thanks for taking the time to reply again David - I'll indeed go back to our accountant and ask which parts of the legislation supports their view vs mine.

I honestly believe that is the sensible thing to do. Rmillaree gives some sense of just how complex the rules, for something as apparently banal as travel expenses, are.

There is no shortcut to an analysis of all the detail, unfortunately.

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By petersaxton
26th Aug 2021 11:27

"exempt" or "taxable"!?
are you paying their travel costs or paying for their time spend travelling?
there's no mention of any payments in your question.

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Replying to petersaxton:
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By ElsBels41
26th Aug 2021 11:35

In my efforts to be succinct it looks like I've not been clear - sorry! In an ideal world we would pay for their travel via an expense claim (mileage/bus) or via the company travel account (train/plane). I appreciate, if taxable. the tax reporting is different depending on who pays (the employee directly or the company).

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Replying to petersaxton:
By petersaxton
26th Aug 2021 13:31

I see there was a mention of payments! Sorry.

Isn't the issue whether travel is to a temporary work place or permanent?

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Replying to petersaxton:
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By lionofludesch
26th Aug 2021 18:28

petersaxton wrote:

I see there was a mention of payments! Sorry.

Isn't the issue whether travel is to a temporary work place or permanent?

It's certainly one of them.

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By rmillaree
26th Aug 2021 11:50

The devil really is in the detail here

1) We have employees contracted to work from home (they live beyond commuting distance of the head office) - if they travel to head office I have classfied this as exempt.

You may be onto a sticky wicket here if the reason for travel to head office is not for a temporary "purpose" or "temporary duration". It's possible or perhaps even probable that both workplaces are permanent workplaces from day 1 if for example the highlighted text below applies - where the highligted text below applies hmrc's viewpoint is that the reason for travel is not likely to meet the "temporary workplace" requirements UNLESS the trips to head ofice themselves are likely to be for limited duration (less than 24 months) (reasonably unlikely scenario) - even if its likely to be less than 24 months its not 100% certain taht you in the clear too!

Note when i say sticky wicket the linked guidance is hmrc's viewpoint - the legislation may not exactly match what hmrc's viewpoint is - so there is a chance hmrc's viewpoint here could be biased!

I would say specific specialist advise here is a must - ideally from insuraed advisor who you have comeback from if their advise is clearly wrong !!!

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32150

"part of a series of visits to the same workplace for the continuation of a particular task)"

It is also higfhly complicated area to even work out what is being said !- don't presume my thoughts are 100% correct its easy to get it wrong here by cherry picking guidance (as i have done !!!) = apologies in advance if my thoughts are wide of teh mark (i will likely be corrected pronto if this is the case :)

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Replying to rmillaree:
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By ElsBels41
26th Aug 2021 11:57

Thanks for your reply - it really is appreciated. You can see why, when even reading the guidance, I came away somewhat confused. One thing I hadn't considered was whether even the homeworkers would breach the 24 month rule from day 1 so that is definitely food for thought.

These scenarios will be come more and more common post-covid I imagine.

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Replying to rmillaree:
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By The Dullard
26th Aug 2021 15:50

rmillaree wrote:

... You may be onto a sticky wicket here if the reason for travel to head office is not for a temporary "purpose" or "temporary duration". It's possible or perhaps even probable that both workplaces are permanent workplaces from day 1 if for example the highlighted text below applies - where the highligted text below applies hmrc's viewpoint is that the reason for travel is not likely to meet the "temporary workplace" requirements UNLESS the trips to head ofice themselves are likely to be for limited duration (less than 24 months) (reasonably unlikely scenario) - even if its likely to be less than 24 months its not 100% certain taht you in the clear too!...

This is not correct. The test in s 339(6) says that, "for the purposes of [s 339(5), the 24 month test], 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 state that more than 20% of the working time is a significant extent - but that is only their view - so somebody that is only attending head office occasionally will only have a continuous period of work at head office for the duration of those attendances, if it is less than 20% of their working time.

So, in my view, the employee that only occasionally visits head office is not commuting.

Those that attend a day per week fall foul of s 339(4) if they do not also fall foul of s 339(5). Hard to say on the third category, without knowing the regularity of "ad-hoc".

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By LW64
26th Aug 2021 12:13

Another section worth reading;
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32170

"...In Kirkwood v Evans (74TC481, see EIM32374) Mr Evans worked at home for four days a week under a voluntary homeworking scheme. The court confirmed that even though Mr Evans’s home was a “workplace” his journey to his employer’s premises on one day a week was nevertheless “ordinary commuting” and so did not qualify for relief under Section 338...."

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Red Leader
By Red Leader
26th Aug 2021 12:21

This is a ridiculously complex area as matching the facts to the HMRC scenarios can be difficult. Business travel shouldn't be so complicated but just getting to grips with the guidance is challenging:
https://www.gov.uk/government/collections/tax-and-national-insurance-con...

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Replying to Red Leader:
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By David Ex
26th Aug 2021 12:30

Red Leader wrote:

This is a ridiculously complex area as matching the facts to the HMRC scenarios can be difficult. Business travel shouldn't be so complicated but just getting to grips with the guidance is challenging:
https://www.gov.uk/government/collections/tax-and-national-insurance-con...

Spot on.

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Replying to Red Leader:
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By The Dullard
26th Aug 2021 16:00

The problem is that people JUST refer to HMRC's copious guidance, without referring to the two pages of legislation that will often simplify the position.

The tests are:
- is it private mileage (travel between two places neither of which is a workplace, by reference to the employment concerned),
- is it commuting (travel between home, whether or not it is also a workplace, or a non-workplace and a permanent workplace), and
- is the workplace concerned a temporary workplace or a permanent workplace.

The latter is generally the troubling point, and the questions are why does the employee go there? was it necessary for the performance of their duties? how regularly to they go there? does it form the base from which the employment duties are carried out? With the answer to all of those questions you can deal with all of the tests in s 339(1) to (4). You then have to deal with the slightly more difficult tests in s 339(5) to (7), substituting HMRC's 20% of working time "rule" of thumb for a significant extent, and (8).

You'll generally arrive at a far better answer from the legislation and then you can go through HMRC's guidance and see that there isn't an example that fits your particular fact pattern, because it was written by people without real-life experience.

HMRC ignore the fact that the employee may go to place X for the purposes of a one-hour meeting, but then spend their entire working day there to avoid breaking up the day with travelling. The task of limited duration, for the purposes of applying the tests, is then the one-hour meeting, not the whole day, but the whole day will count towards the 20% of their working time.

The test I omit, which does also give difficulty is whether a journey is substantially (ordinary) commuting, which needs to be considered in the round, with some reference to HMRC's (mis)guidance.

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By Hugo Fair
26th Aug 2021 13:10

Agree with all the responses so far - even if that doesn't help OP much (yet).

However, final question was 'How do they (HMRC) define whether it is a "choice"?'
To which the answer is (broadly) by starting with T&Cs of the individual Employment Contract ... and not relying on deliberately vague terms. In other words, an employee who works from home but cannot point to that being due to compliance with a term in their contract (or subsequent addendum to it) is doing so by "choice" (by default).

FWIW this is the same method of 'definition' used for related areas such as the WFH allowance.

Nevertheless, as others (particularly rmillaree) have pointed out ... there is a LOT of HMRC guidance out there (by no means all of it either consistent or comprehensive) - which is generally focussed on trying to narrow the scenarios in which the travel costs might be excluded from consideration as commuting.
In other words, as per your accountant, the starting point will always be that it is commuting (and any reimbursement thus taxable) unless you can demonstrate otherwise. Good luck with tracking through the legislation as opposed to guidance!

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By Duggimon
26th Aug 2021 13:53

Taking a broad brush approach which might be proved wrong depending on some detail omitted, I would say that scenarios 2 and 3 are definitely not exempt from BIK if the company reimburses, and scenario 1 probably isn't either, but is at least slightly more likely.

The head office is a permanent workplace for your employees who work there, regardless of how fractionally or infrequently they work there.

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Replying to Duggimon:
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By rmillaree
26th Aug 2021 14:01

Duggimon
"The head office is a permanent workplace for your employees who work there, regardless of how fractionally or infrequently they work there."

Is there not some limited scope for exactly the opposite to be true though Duggimon - if we take the viewpoint that some employees only might ever turn up at the main head office to perform "discreet tasks" rather than perform ongoing employment duties ! - must admit that practicably speaking bods who are at a location or or two days a week or month on and off are more likely to be doing normal employment duties , but i wouldnt presume this is the case for every employee!

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32150

An employee may attend a workplace regularly and perform duties there that are not of limited duration without that workplace becoming a permanent workplace, provided that the purpose of each visit is temporary.

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.

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Replying to rmillaree:
By Duggimon
27th Aug 2021 09:04

It's just all so woolly, the HMRC guidance doesn't really map well to the rules and tests in the legislation, and rather complicates things. To my mind, travel from your house to the permanent office of your employer is commuting, except possibly in the circumstance where you don't work in the office at all and only have to pop in for the odd meeting.

You could base your interpretation on the guidance and possibly conclude for some other staff that the office is a temporary workplace, though from what's presented in the OP it's unlikely this would be the case for anyone in scenario 2 or 3.

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Replying to Duggimon:
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By Hugo Fair
27th Aug 2021 11:23

This is dangerously close to using common sense ... and is therefore a description of what I do in practice - using two basic factors: a) what the contract says about where the employee is meant to work, and b) the specific circumstances resulting in a journey to the office.

For instance:
1. I call employee who is contracted to WFH and ask her if she could pop by the office (as it's almost en route) to pick up a package for the client she's visiting.
Result = tax-free reimbursement of mileage costs.
2. I call another employee and tell them to come to the office for an all-day meeting with project team to resolve/prevent any more delays.
Result = taxable reimbursement of mileage costs (however unfair that seems).

Of course my first factor (the contract) means that OP's 2nd & 3rd scenarios don't get a look in ... and I recognise that this is a really subjective method, but for the amount of time and tax at stake it has always worked for me and HMRC (so far)!

NOTE: the beauty (aka danger) of this approach is that you (as HMRC tend to do) can always invent further 'factors' that seem eminently sensible - such as the frequency of these trips to the office. And this is why legislation should be preferred - albeit hopefully in a simpler way than the current mess on this topic.

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By Tax Dragon
26th Aug 2021 17:04

I find a good rule of thumb on threads about this issue is.... sure, read everyone's thoughts, but pay particular attention to the comments made by The Dullard. Most people seem to interpret guidance (and provide guidance about the guidance in their comments). Dulls starts with the law and often provides a concise summary, and clear exposition, thereof. (Do read the comments with the law open in front of you.)

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By paul.benny
27th Aug 2021 16:16

It's a really good question - thanks to the OP and to those who've answered. I can see it becoming much more of an issue with many more of us working from home some of the time. And since potentially it can mean workers receiving untaxed income, it's a dead cert that we'll see new guidance and/or new legislation.

FWIW, my speculation is that the rule will be something like home-office is only allowable if your job can't readily be done from the office location - eg travel to the John O'Groats head office by a salesperson based at Lands End and serving Cornwall would be ok because you can't support that territory at a distance.

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By ElsBels41
31st Aug 2021 23:04

Glad to see such a healthy debate on this! Referring to the legislation has proved really helpful and something I will do more of going forward.

The example here was also interesting - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32153 - and I think will apply in some instances here.

Nonetheless, I’ve concluded that if we have staff travelling regularly to the office purely to do their job (and not for a clearly documented temporary purpose) albeit in a different location then any travel payments made will be taxable.

I really appreciate everyone’s here so thanks to all.

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By [email protected]
02nd Sep 2021 18:06

Having worked at a place that got burned by this very conundrum (picking up the pieces from the previous accountant I may add)

Good records of travel are important to substantiate what you pay
What the employment contract says is the persons workplace *Really* matters
HMRC do follow the 20% test and the regular pattern test. Your evidence can back up your assertion.
What is allowabe as business travel can also be used to substantiate VAT reclaim on the fuel element. Again good records needed including the car and engine size etc.

Be aware that travel costs is the first thing HMRC look at on VAT and PAYE inspections. Because they know they can get easy wins!

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