Worksites not temporary, tax relief denied
HMRC denied a defendant's claims for travel and subsistence costs on the basis that the construction sites were not temporary workplaces attended for less than 24 months.
Mr Sambhi is a construction worker and has worked for the Lend Lease group since June 2007. Lend Lease undertakes construction work throughout the UK, and Sambhi can be required to work at any of Lend Lease’s project locations across the UK.
Sambhi’s home is, and always has been, in Birmingham. However, between September 2013 and September 2019, he worked on 11 projects around Greater London.
Sambhi lived in temporary accommodation from Monday to Friday and would travel to and from his temporary accommodation to his assigned construction site each weekday. He returned to his home in Birmingham at weekends.
Tax relief for travel and subsistence
As a matter of general law, the cost of commuting between home and the workplace is not a deductible expense against employment income.
If a workplace is a "temporary workplace", then relief can be claimed in respect of all travel costs.
However, s339 ITEPA 2003 can apply to prevent a workplace from being temporary. Broadly, s339(5) is in scope where an employee attends a workplace in the course of a period of continuous work that lasts, or is likely to last, more than 24 months (the “24-month rule”).
HMRC deny relief under 24-month rule
HMRC denied claims made by Sambhi in his 2015/16 and 2016/17 tax returns for travel and subsistence expenses. The tax due for both years amounted to £19,993.60: £10,030.40 for 2015/16 and £9,963.20 in 2016/17. Sambhi appealed against the HMRC review decision [TC07717].
HMRC accepted the project Sambhi worked on in Putney between September 2013 and April 2015 was a temporary workplace, and allowed his claim for relief in respect of travel and subsistence allowances for this period. However, HMRC argued the 24-month rule applied to deny relief for travel and subsistence expenses to the other sites.
The taxpayer argued that HMRC did not follow its own guidance at Guide 490, which at 3.24 states that construction sites are considered temporary workplaces where the employee’s attendance at the site is not expected to last longer than 24 months.
Issue before the first tier tribunal
The fact that each of Sambhi’s project locations was capable of being a temporary workplace was not in dispute. As such, the issue to be considered was whether any of the project sites were prevented from being a temporary workplace under s339(4) or s339(5) ITEPA 2003.
In this case, the specific question that fell to the first tier tribunal (FTT) was whether s339(7) ITEPA 2003 applied to the taxpayer’s transfer from one project to the next.
In practical terms, this meant the FTT had to consider whether there had been a substantial change to the journeys made by Sambhi when the project locations changed, or whether there was a substantial change in his travel expenses.
If, as HMRC argued, there was no substantial change and s339(7) applied, all of Sambhi’s work sites in Greater London would be treated as a single workplace. As Sambhi’s work across the various sites spanned more than 24 months, the “24-month rule” then comes into effect, denying relief for his travel and subsistence expenses.
If s339(7) did not apply (i.e. each site was considered separately), relief for Sambhi’s travel and subsistence expenses would be allowed, as his engagement on each project was less than 24 months.
Average journey times and costs
The FTT considered that the correct approach was to consider the journeys from Sambhi's home in Birmingham to the various construction sites, via the temporary accommodation, but to average them over the week.
The FTT estimated that Sambhi’s weekly travel costs differed by no more than £14 on changing from one project location to another.
When considering the changes in journey time when moving projects, the FTT’s calculations found that the greatest change in a one-way trip time (averaged over a week) was just over half an hour.
Was there a substantial change?
As “substantial” is not defined in legislation, a dictionary definition was considered.
The FTT found that the essence of the various definitions of substantial was the emphasis on size. Therefore, the FTT found that for something to have a "substantial effect", the effect must be sizable.
The FTT did not consider a change of any more than £14 in Sambhi’s weekly travel costs on changing workplace to be substantial. When it came to the journeys made, while the FTT conceded that any judgement had to be impressionistic, it also found that the difference in average journey times did not give rise to a “substantial effect".
The appeal was dismissed.
By the FTT’s own admission, there was an element of subjectivity when determining if changing sites had any substantial effect on Sambhi’s journey or travel expenses. Invariably, not everyone will agree with the FTT’s decision.
However, there was another potential issue in this case, which the FTT raised, but did not provide full comment on: was the taxpayer’s “temporary accommodation” really temporary, noting that one place was rented for over three years? Or did Sambhi, in substance, have a second home in London, from which he commuted daily to the various workplaces?