Travel and subsistence: discussion paper

Question 1

1. Introduction

Accepted Answer

Every year millions of employees travel as part of their job and the expenses they incur on these journeys are either paid for or reimbursed by their employer. What those employees may not realise is that there are intricate tax rules that determine whether those reimbursed expenses are taxable or not, which their employers need to consider and apply on a daily basis.

Following a consideration of these rules by the Office of Tax Simplification (OTS) as part of their review of employee benefits and expenses, the government announced at Budget 2014 that it would conduct a review of the tax rules for travel and subsistence (T&S).

This discussion paper:

sets out the background to the review, including an overview of the current T&S rules
sets out the case for change, including an outline of the issues identified
outlines a potential framework for new rules that tackle the issues identified
summarises key questions and issues we would like to test with interested stakeholders and sets out the next steps

This discussion paper sets out the principled case for change and does not include any firm proposals. Responses to this discussion document will inform the policy development process, and the detail of any proposed reform would be subject to full consultation at a later date.

The review also needs to be set in the context of the background of the wider economic situation. At a time when the country is working to pay down the deficit, the government believes the best way to support hard working people through the tax system is by prioritising tax cuts for the lowest paid, through increases in the income tax personal allowance.

The government therefore believes that any new set of rules that simplify the tax treatment of T&S expenses must not overall come at a cost to the exchequer. This means that any simplifications to the rules which make them more generous than the current rules must be balanced by restrictions elsewhere.

1.1 Background

The OTS published their second report on the review of employee benefits and expenses in January 2014, and made several recommendations for simplifying the rules and removing employers’ administrative burdens.

In response to that report the government has already legislated for a number of the changes that the OTS recommended to simplify the tax treatment of employee benefits and expenses. These include:

the removal of the £8,500 threshold below which employees do not pay income tax on certain benefits in kind, replacing this with new exemptions for carers and ministers of religion
plans to introduce a new exemption for certain reimbursed expenses, providing they are not used in conjunction with salary sacrifice
the introduction of a statutory framework to allow employers to voluntarily report the tax due on certain benefits in kind in real time (payrolling)

As announced at the Summer Budget, a new exemption for trivial benefits in kind under a certain threshold is also being introduced and will be legislated for in a future Finance Bill.

One of the other areas of focus in the OTS’s report was the tax treatment of T&S. The OTS consulted with employers to identify areas of difficulty with the current rules and proposed a number of recommendations to improve the rules for T&S.

The government agreed with the OTS’s findings and felt that the best way to address these concerns was a comprehensive review of the tax rules for T&S expenses, which was announced at Budget 2014.

The purpose of this review is to consider ways of modernising and simplifying the rules for tax relief on T&S expenses in order to make them easier for employers to understand and to apply in practice, while reflecting contemporary practices in the labour market.

At the March 2015 Budget the government announced proposals that would restrict tax relief on T&S for individuals working through an employment intermediary (such as an umbrella company) and under supervision, direction or control, in the manner their work is undertaken. This review will not change the outcome of those proposals, but the resultant legislation will be considered as part of this wider review.

During the first phase of the review, officials met with 34 stakeholders from a cross section of different sectors, who got in touch with the review team after the review was launched in July 2014. The government has used these initial discussions to identify areas where the rules might be made clearer, as well as those parts of the current rules which already give a clear and sensible outcome.

Current travel and subsistence rules

The current rules for T&S have not changed substantively since April 1998. Within the current system there are 2 main travel rules.

The first rule gives relief for “travel in the performance of the duties of the employment”. In other words this gives relief for travel that is an intrinsic part of the employee’s job, such as journeys undertaken by a lorry driver, a travelling salesman, or a utility meter reader. This can also include journeys between 2 workplaces. This rule is generally well understood and applied correctly by employers in practice.

The second rule gives tax relief for necessary journeys to workplaces that an employee has to attend for work, apart from the cost of “ordinary commuting”.

The rules define ordinary commuting as being journeys between an employee’s home, or somewhere that’s not a workplace, and a “permanent workplace”. “Permanent workplace” in turn is defined as being a workplace that they attend regularly and which is not a “temporary workplace”. Several rules then apply to determine whether or not a workplace is a temporary workplace, but the main tests are:

whether the employee is attending the workplace for a limited duration or a “temporary purpose”
whether they perform, or expect to perform their duties to a significant extent at the workplace (interpreted to mean spending over 40% of their working time there – also known as the “40% rule”)
whether they attend, or expect to attend, the workplace for more than 24 months

There are also rules that deal with specific situations, such as journeys to a depot where tasks are allocated, where the employee’s job is defined by reference to a particular geographic area, where the employee attends the same workplace for most of the time they hold the employment, or where the journey is not significantly different from the employee’s ordinary commute.

Each of the different tests and rules have a significant amount of associated guidance to help employers apply them in practice. The HMRC guidance booklet for employers on these tests runs to over 70 pages. This paper will not set out all of the nuances of the current rules. However, there are some details of the current rules which are particularly relevant to the discussions later in this document (chapter 2).

One point to note is that in practice it is possible that all of an employee’s workplaces will be temporary workplaces, and that they will have no permanent workplace – for example, if an employee’s job was to work at different clients’ premises for 12 months at a time before being sent to a new client.

It is also possible that more than one of an employee’s workplaces will be permanent workplaces. In fact, any workplace that an employee attends regularly on an ongoing basis will be a permanent workplace, and so no tax relief would be available on the employee’s journeys from their home to that workplace. This is the case even where the workplaces are a significant distance from each other.

It should also be noted that the “significant extent” and “24 month” rules both rely on the expectation of whether those limits will be exceeded. In practice this means that an employee is no longer eligible for tax relief on their travel to a temporary workplace from the moment that they or their employer expect or intend that they will work there for more than 24 months. So in some cases the employee may expect from the outset that they will attend the workplace for more than 24 months, and so would never be entitled to tax relief on their journeys from home to that workplace. In other cases, an employee may only realise that they will be attending the workplace for more than 24 months once they have already been working there for some time.

When a journey qualifies for tax relief employees are also entitled to claim tax relief on subsistence expenditure that is incurred on that journey. This includes:

any necessary subsistence costs incurred in the course of the journey
the cost of meals necessarily purchased whilst an employee is at a temporary workplace
the cost of the accommodation and any necessary meals where an overnight stay is needed as part of the journey. This will be the case even where the employee stays away for some time.

These rules for T&S are complex and can be difficult for employers to apply on a consistent basis, particularly given the context of changing work patterns and mobility of workers.

Question 2

2. Case for change

Accepted Answer

The physical work environment and patterns of working have evolved since the rules last changed. Better technology enables people to work flexibly across different locations, at their home and while travelling. Many employees do not have a fixed desk at any particular workplace or at a particular geographical location. There has also been an increase in the number of people who have responsibility for a geographical area and, as a result, make regular visits to a number of different sites.

The OTS found that the current system is reasonably well understood by employers and works for the majority of employees – those who attend the same work place each day and make an occasional business trip. However, the OTS also found that complexities arose for some employees who travel frequently to perform their work duties.

In addition to the OTS’s findings, during the first phase of the government’s review officials have spoken to a cross section of employers about the current rules. These employers echoed the sentiment that although the rules work well for most employees, for a minority of employees the rules are difficult to understand and operate.

These initial conversations also provided a view of the difficulties being faced by employers under the current rules, and the questions the government would need to consider in any reform, which were again similar to the OTS’s findings.

The main issues that the OTS review highlighted were:

a lack of understanding over the level of attendance that constitutes ‘regular attendance’ and how that test fits with the other rules
confusion around the definitions of permanent and temporary workplaces, particularly as these terms do not take their everyday meaning, making the distinction between them seem contrived and resulting in outcomes that look unfair to some workers (eg those employees who have a series of workplaces which most people would regard as being “temporary” under any ordinary use of the word)
the fact that the ‘24 month rule’ relies on the employee’s intention rather than the amount of time actually spent at the location, making it difficult for an employer to judge when that employee’s intention changed
the fact that the current rules can mean that an employee ends up with more than one permanent workplace, even where their workplaces are a significant distance apart
confusion around whether or not a journey is ‘substantively the same’ as ordinary commuting or private travel
confusion around homeworking, and whether or when a home to workplace travel is a workplace to workplace journey rather than ordinary commuting.

These issues are set out in detail below:

Regular attendance

The ‘regular attendance’ test considers whether an employee attends a workplace regularly. It causes confusion because the rules are not clear and rely on case law and HMRC guidance. HMRC’s interpretation of this test is whether an employee’s attendance is:

frequent
follows a pattern
if it is the place they usually attend for all or almost all of the period for which they hold or are likely to hold that employment

Employers often do not know how to interpret the T&S rules regarding regular attendance, whether it’s the frequency of the visits, the pattern of attendance, or a combination of the two that make the attendance ‘regular’.

For example, the OTS report said it was unclear whether someone attending a workplace for two days a week, but with no particular pattern as to which those two days were, would be attending that workplace ‘regularly’ for the purposes of the travel rules. The legislation relies on the concept of regular attendance without ever really clearly defining what this means.

Definitions of ‘permanent workplace’ and ‘temporary workplace’

Definitions of ‘permanent workplace’ and ‘temporary workplace’ cause confusion because the lengthy definitions in the current rules for tax purposes do not seem to match the ordinary meaning of those phrases.

For example, a workplace attended every Monday for the duration of a 5 year project, with the possibility of further extension, might well seem quite permanent when compared with the staff turnover in some industries, but is likely to be a temporary workplace under the current rules if the employee spends less than 40% of their working time there because of the ‘significant extent’ rule.

Similarly, when someone takes up a short term contract with an employer for 3 to 6 months the employee and employer would both likely consider the employee’s attendance at the workplace to be ‘temporary’, but the rules would consider this to be permanent in most cases if the employee spends more than 40% of their time there over the period of their employment with that employer.

The ‘intention test’

Employers have been very clear that they feel in many cases the intention test cannot be operated in practice, particularly in large organisations. This is because the person who has to make the decision about whether or not to treat an expense payment as taxable is often a long way removed from the details of the individual’s work, and so is unlikely to be able to assess how long the employee expects to be at the workplace.

More than one permanent workplace

The OTS report commented that the most commonly raised issue during their discussions with employers was that the rules are not fair to employees who regularly work in more than one location. Under the current rules such employees will often have more than one permanent workplace, even where those workplaces are a significant distance apart.

Many employers do not operate the rules correctly in such a scenario, as they assume that an employee can only have one ‘permanent workplace’. This misconception may stem from the fact that most people would think it illogical for an employee’s journeys to 2 different places to both be treated as ‘ordinary commuting’ (in the everyday meaning of the phrase) if the workplaces are a significant distance apart.

Employers also said that this rule drives odd behaviours from employees, such as trying to contrive a reason to spend some time at a workplace near to where they live before travelling onwards to the more distant workplace, in order to get tax relief on the longer part of their journey.

While this issue was raised with both the OTS and in meetings with officials, it is unclear whether this issue affects a large number of individuals, or whether it affects a small number of individuals quite significantly.

Journeys being substantially the same as ordinary commuting

Employers find the concept of whether or not a journey is ‘substantially the same’ as ordinary commuting or private travel confusing, as there is no hard and fast rule determining how much a journey has to change before it is no longer substantially the same as the employee’s ordinary commute.

Home working

With home working increasingly being a feature of modern employment (both on a voluntary and compulsory basis) employers are increasingly struggling with the decision about when a journey from the home (as a workplace) to another workplace will attract tax relief and when it will not. This is not set out explicitly in the current rules at all, meaning that employers find themselves needing to rely heavily on HMRC guidance.

Reducing complexity

As well as identifying the issues above, employers were also clear that they would value a system that gave them certainty by not being as open to interpretation and therefore disagreement with HMRC, and that ideally the rules would be objective, based on facts that would be immediately apparent to anyone making decisions about the tax treatment.

Based on these insights from employers, although the government agrees that the current rules seem to give the right result for the majority of employees, it nevertheless believes that the rules can be made clearer to cater for those employees where these rules are currently not functioning very well. This would also reduce the need for employers to rely on extensive guidance in order to apply the rules in practice.

Day subsistence

As part of the rules on subsistence expenditure, employees are entitled to claim tax relief for costs incurred in buying lunch where these are incurred in the course of travelling in the performance of their duties or when attending a temporary workplace.

The government believes that the current rules are outdated. This rule dates back to case law from 1930 when many employees would have had free or subsidised meals in a staff canteen at their place of work and so would incur extra costs when they were away from that workplace. The government believes there is an argument against the taxpayer continuing to subsidise these expenses, which are effectively a private expense. However the government has limited data on the use of this relief and is therefore keen to understand who currently uses the relief so that it has a better understanding of the impacts of any future changes in this area.

Exchequer cost

The government believes that any reform to the current rules should not adversely impact on the exchequer. Therefore, small, principled changes to restrict some aspects of tax relief for travel and subsistence expenses will be required in order to balance more generous simplifications.

Question 1: Do you agree that these are the main issues that cause employers difficulty under the current rules? Which rules create the most difficulties?

Question 2: Are there any additional issues with the current rules that are not summarised above?

Question 3: How widespread is the issue of employees having more than one permanent workplace? Are there any particular industries or roles where it is commonplace?

Question 4: Overall, do you agree that there is a good case for reforming some aspects of the tax rules for travel and subsistence expenses?

Question 3

3. Potential ways forward

Accepted Answer

The government has kept in mind the fact that the current rules work well for most employees. Therefore it is not the intention to change the tax treatment of travel expenses for those employees with fairly straightforward working arrangements where the current rules are generally clear and easy for an employer to apply and give the outcome that most employees and employers would expect.

As set out previously, the government intends that this review will not change the outcome of the proposals on the restriction of T&S relief for employees working through employment intermediaries, but the resultant legislation will be considered as part of this wider review.

The government believes that the fundamental principle behind the current rules (that tax relief should be available for business travel but not for ordinary commuting) are correct, but recognises that for some employees the current rules do not reflect the modern workplace and can be complicated for employers to apply.

It has become clear during the first phase of this review that the question of whether a journey is business travel or ordinary commuting is complex, and any set of tests that uphold the principle of the current rules will have a degree of complexity. However, the government does believe that the current rules can be significantly improved to make them easier to understand and to apply in practice.

Principles

Taking all of these factors into consideration, the government has identified a number of principles that any new set of rules should try to uphold.

These principles are:

that tax relief should continue to be available for business travel, but not for ordinary commuting
any tests should be objective and based on measurable facts as far as possible – they should not rely on the intentions of the employee
new rules should not be based on the concepts of ‘permanent’ and ‘temporary’ workplaces except and unless these terms carry their everyday meaning
employees should not have their journeys to multiple locations or areas which are a significant distance apart all treated as being ‘ordinary commuting’
relief should not be available for subsistence where this is essentially akin to a private expense
any changes should not come at an additional cost to the exchequer

Question 5: Do you agree that these are the right principles on which to base a new set of rules? Bearing in mind the requirement that any changes should not come at a cost of the exchequer, are there any additional principles that the government should consider?

Based on these principles a potential framework for a new set of rules has been developed, which is described below. The framework sets out the shape of a possible new set of rules, and asks a number of questions of employers and other interested stakeholders to inform the further development of these proposals.

Many of the tests in the framework are similar to the tests in the current rules, but are formed with a view to being more objective in order to try and make them easier to apply in practice and understand. Some of the new or restructured tests are also based on the recommendations that the OTS made on how the current rules might be re-written to remove some of the complexity in a targeted way.

Feedback from this discussion document will inform policy development and the intention is then to have a further consultation on the detail of the proposed new rules and then to finally consult on the details of draft legislation.

Proposed framework

The intention for the proposed new framework would be to broadly allow tax relief for three types of journeys:

journeys made necessarily in the performance of the duties of the employment
journeys to allow the employee to attend a location where their attendance at that location is a necessary part of their job, and the location is not the employee’s “main base”
journeys to the employee’s main base where all bases of the employee are ‘detached duty’ locations

The intention would be for employees to consider these rules in order - they would not need to consider the later rules if they had already qualified for relief under one of the earlier rules. For example, if an employee is travelling to a location other than their main base, they would not need to consider the ‘detached duty’ rule at all since they would have already qualified relief under the ‘main base’ rule.

The three parts of the framework are discussed in more detail below.

Travelling in the performance of the duties

The first of these three rules is essentially unchanged from the current rule for employees for whom travelling is an intrinsic part of their job.

The government believes that this rule currently works well for those employees that are affected by it, and that it is reasonably well understood by employers.

Example: (i) A lorry driver has to go to a depot to pick up their truck each day. They usually return to drop off the truck at the end of the day. The lorry driver would receive tax relief for all travel except travel to and from the depot, as this would be considered ’ordinary commuting’.
(ii) A service engineer visits up to 10 customers each day throughout the UK. They have no normal workplace and is emailed a job list each evening for the following day. Travel is an integral part of their job and they carry out the duties of their employment at each customer’s premises. Relief is available for the cost of all the service engineers’ business travel, including from their home to their first appointment and from their last appointment to their home.

In both cases, the tax treatment of T&S would remain unchanged as a result of this rule.

Question 6: Do you agree that this rule currently works well and should remain broadly unchanged?

Travel to locations other than the employee’s “main base”

Of the three rules in the framework, the rule allowing relief for necessary travel to locations other than the employee’s “main base” is the biggest departure from the current rules.

This rule would require an employee to identify any “bases” that they have. A “base” for these purposes would be defined as any location where the employee necessarily spends more than a specified percentage of their working time.

If an employee only has one “base” then that location would be the employee’s “main base” and the employee would be entitled to tax relief on home to work journeys to any location except their main base. If an employee were to have more than one “base” then the rules would need to specify which base is the employee’s “main base”. A straightforward way of doing this would be to require the employee to nominate which of the bases is their ‘main’ base.

If an employee had no bases at all then they would by extension not have a main base, and therefore be entitled to tax relief on all of their necessary travel for work, including home to work location travel. As this creates a strong incentive for employees to try and arrange their affairs so that they have no bases anywhere it is important that the test to identify whether a location is a ‘base’ is objective and robust.

This rule evolved from comments made to officials by employers who felt that, apart from their truly itinerant workers, most of their employees would have a base somewhere, even if that wasn’t where they spent the majority of their time (eg they spend most of their time at various clients’ premises).

This rule addresses 2 of the bigger issues that employers have with the current rules – confusion over the phrase ‘regular attendance’ and the perceived unfair outcome that the current rules give those who have more than one permanent workplace.

Introducing a percentage-based test was one of the OTS’s more specific recommendations, although they recommended it in the context of the current rules. The OTS’s recommendation included a 30% test, which may provide a sensible starting point for discussions on what the specified percentage should be for a ‘main base’ test.

Example: (i) A retail manager responsible for a number of retail shops in the North-East region. They are required to travel to and from the same shops in these locations on a frequent basis. Currently, whether these journeys will attract tax relief depends on whether they attend each of these locations ‘regularly’ ie if their regular attendance follows a pattern, they would not receive relief for these journeys. If they visit more than one of the locations in a day, then they would usually receive relief for travelling between them.

Using a percentage-based test with the OTS’s suggested 30% figure, the retail manager would be able to identify which, if any, of the shops are a ‘base’. Then, if one or more of the shops are a ‘base’ based on the percentage of their time spent there the manager could nominate one of them as their ‘main base’. The journeys made to, from, and between the other locations would then attract tax relief.

(ii) An employed IT contractor working for a large firm has a number of clients across the UK. The contractor splits their time across multiple client’s premises four days in the week, usually working at a different location each day, and attends their employer’s main office every Friday. The IT contractors’ journey to and from their employer’s main office would currently not attract any relief, as it would be considered ordinary commuting. The IT contractor will usually get relief for journeys to a client’s premises, unless the project at those premises is expected to take more than 40% of their working time for more than 24 months.

Under this proposed rule, as the employee is not spending more than 30% of their time at any location, they would have no ‘base’ and therefore no ‘main base’. This means that under the proposed rule their travel to and from their employer’s office would attract tax relief.

Question 7: Do you agree that the concept of an employee’s “main base” is a sensible basis for a new rule?

Question 8: Would a test based on the percentage of an employee’s time spent at each location be workable for employers in practice? Would it be better than the more subjective tests in place at the moment?

Question 9: Do you agree that employees should be able to nominate which of their ‘bases’ is to be their ‘main base’? Is there an alternative that the government should consider (eg the location where the employee spends the highest proportion of their time)?

Travel on detached duty

The third rule is essentially a much simplified version of the current “temporary workplace” rule. Detached duty means working away from their normal work location.

The broad intention is that where an employee is on detached duty, as part of an ongoing employment, they would be entitled to tax relief on their travel to that detached duty location.

There are a number of ways that a ‘detached duty work location’ could be defined, but one way would be to try and define it as somewhere where either:

the task or job the employee is performing at that location is of a limited duration (in other words, the job or project that the employee is attending the location to work on, is temporary); or
there is only a requirement for the employee to attend the workplace for a limited duration (ie the employee is only needed at a location on a temporary basis, e.g. for maternity cover)

This is similar to the current “limited duration or temporary purpose” test, but doesn’t rely on interpretations of the term “temporary purpose”. This would still need employers to “look forward” in order to determine whether the work location is expected to be a detached duty location, but it would not rely on the intentions of the employee, only the requirements of the job that they’re performing at that location.

This is of course only one possible way of defining a detached duty location, and the government is open to discussing other ways in which this could be defined.

It would also be necessary to withdraw relief under this rule after the employee has been at the workplace for a specified period of time, as after an employee has spent a long time working at a location it becomes difficult to justify treating it any differently than any other base that an employee works at. This might be 24 months, in the same way as the current temporary workplace rules, or it could be a different period of time. However allowing tax relief to be claimed for longer placements would have a cost to the exchequer which would have to be met by more restrictive rules elsewhere.

However, unlike the current rules, the government proposes that relief would be available for the whole of the specified period, even where it is known from the outset that they will attend the workplace for longer than the specified period. This aligns with one of the OTS’s specific recommendations – that employees should get relief for the first 24 months at a “temporary workplace” even when they know that they will be at that workplace for more than 24 months at the outset – although that recommendation was in the context of the current rules.

So, for example, if the specified period were 24 months, and an employee was asked to attend a detached duty location for 3 years, they would still get relief on their travel for the first 24 months under this proposal.

Similarly, where an employee works at a single location for the whole or most of the period they are employed, this would not be a detached duty location, since an employee cannot really be on detached duty at the location that they were hired to work at.

The main caveat to this rule would be that it would only apply where the employee does not have a normal (ie non-detached duty) base anywhere else. This is to prevent the situation of someone getting tax free travel to all of their workplaces by nominating their detached duty location as their ‘main base’, despite having another base elsewhere.

The vast majority of employees would not need to consider this rule at all. This rule would only need to be considered by people spending significant amounts of time at a location away from where they might normally have worked, or whose job involves working for short periods at a number of locations in succession, such as a construction worker.

For those employees, the government believes that this proposal would be easier to operate in practice than the current rules, since it does not rely on the employee’s intentions, which was one of the major issues with the current rules identified by employers.

Example: (i) A project manager working for an IT firm is seconded to manage a project at a client’s premises for three years. They commute to the site from their home rather than incurring costs of a hotel. The project manager would currently not qualify for any tax relief as they know from the outset that they will be at the location for more than 24 months.

Under the proposed rule, the client’s premises would be considered a detached duty location, as the task that they are performing is for a limited duration (the three years of the project). They would now also qualify for relief on their travel to and from this location for the first 24 months, but not the remaining 12 months of the total three year period.

(ii) An office worker is seconded for 12 months to cover maternity leave at a company’s head office, moving from a regional branch of the same company where they normally work. Under the current rules they would likely get tax relief on their journeys between their home and the head office because the head office would be a temporary workplace.

Under the proposed rule, the office worker would still qualify for tax relief for those journeys for the whole 12 months as they would only be required to attend the head office for a limited duration (the length of the maternity cover).

Question 10: Do you agree that there is still a need for tax relief for travel to a work location that an employee attends on detached duty as part of an ongoing employment?

Question 11: Do you agree that basing the rule on the concept of “detached duty” rather than a “temporary workplace” will make it easier for employers to understand what journeys the rule is intended to give relief for?

Question 12: How long should an employee be able to attend a location before it ceases to be a detached duty location, and why?

Work locations vs. workplaces

One of the other issues with the current rules that the proposed framework aims to address is the confusion that employers face over when a journey is ‘substantially the same as ordinary commuting’. Relief is not available when journeys are substantially the same as ordinary commuting, ie when 2 workplaces that are close together, or have similar journey times / costs, are treated for the purposes of the travel rules as being the same place.

For example, a health and safety inspector lives in Leicester and his office in Nottingham is 500 yards away from a processing plant which he visits on a quarterly basis to conduct health and safety reviews. When he travels direct from home to the processing plant he is going to a temporary workplace but his journey is substantially the same as his ordinary commuting journey so he is not entitled to any relief.

The proposed framework addresses this issue by being clear about treating workplaces that are close together as a single “work location”, and having the rules apply to the work locations rather than the individual workplace. So, for example, an employee of a small accountancy firm that usually takes clients in 2 or 3 postcodes in London would need to consider how the rules apply the area as a whole, rather than applying them separately to each of the locations they worked at.

The intention is for a work location to be defined in a measurable way, which could be based on geographical distance, differences in travel costs to the different workplaces in the location, differences in travel time between them, or some combination of the three. The government would welcome views from employers as to what the easiest test would be for employers to operate in practice to determine if two workplaces are in the same “work location”.

Question 13: Do you agree that it is simpler for the rules to consider workplaces that are objectively close together as a single location, rather than the current test of a change in workplace being ‘substantial’?

Question 14: What measure of workplaces being ‘close together’ would be easiest for employers to administer in practice? Are there any that would be particularly difficult for employers to operate?

Homeworking

The proposed framework does not currently make any special provision for homeworkers, although the government recognises that the rules will need to be clear and easy to operate for employees who work at home.

The current rules only allow home to workplace travel to be treated as being travel between two workplaces (and therefore not taxable) in very limited circumstances. In particular, it makes a distinction between those who work at home by choice and those who are objectively required to do so. This distinction is used currently to prevent employees from being incentivised to work more at home by choice in order to qualify for tax relief on their normal commuting costs.

The government believes that this principle should be retained, and that any new set of rules should not provide either an incentive or disincentive for employees to work at home.

In practice this may mean that employees would not be allowed to nominate their home as their “main base” if they have another base elsewhere. However, it would also mean that employees would be able to take time spent working at home by necessity into account when working out the proportion of their time spent working at each location. In other words, where an employee is required to work at home for a significant proportion of their time, they may find that they do not have a ‘base’ anywhere else as a result, therefore travel to any other site would be an allowable business expense.

Example:

(i) An IT contractor working for a large firm has a number of clients across the UK. They split their time across their different clients’ premises two days in the week and attend their employer’s main office every Friday. The IT contractor works from home for the rest of their time, by necessity, as they do not have a physical working space in their employer’s main office. Under the current rules the IT contractors’ journey to and from their employer’s main office would not normally attract any relief, as it would be considered to be ordinary commuting. The IT contractor would usually get relief for journeys to their client’s premises, unless the project at those premises is expected to take more than 40% of their working time for more than 24 months.

Under the proposed rule, the IT contractor would be entitled to include the time spent working from home in considering the percentage of their time spent in each location, which would mean that they do not have a ‘base’ at any of the locations. This in turn would mean that they would be entitled to tax relief on all of their journeys, including between their home and their employer’s main office.

(ii) If instead there was working space available for the employee at their employer’s office but the employee worked at home instead by choice then they could not take that time into account when completing the percentage test. This would mean that the employer’s main office would likely be their ‘main base’ since it would be the only location where they spent more than 30% of their working time (discounting the time spent working from home).

Question 15: Do you agree that the tax rules should not provide an incentive or a disincentive for working from home?

Question 16: Do you agree that employees shouldn’t be able to nominate their home as their ‘main base’ if they have another ‘base’ elsewhere?

Day subsistence

As set out above, the government believes that any reform to the current rules should not adversely impact on the exchequer, and that small, principled changes to restrict other aspects of tax relief for travel and subsistence expenses are required to balance the more generous simplifications.

In order to achieve this the government is interested in proposals to restrict tax relief from areas of the current rules where the results could be seen as being overly generous or difficult to justify. As set out in chapter 2, one of the identified areas where this is the case is day subsistence, as there is an argument against the taxpayer continuing to subsidise employees for what is effectively a private expense. In most cases employees on a business journey who would usually bring lunch from home could still do so if they wished, and employees who would usually buy a sandwich could still do so.

However, the government is keen to understand the potential impacts of any future changes in this area and appreciates that there may well be particular groups of people who will be at a disadvantage if relief for subsistence expenses incurred during the day(s) of a business journey were removed, and would like to understand who those groups might be and why they would be particularly badly affected.

Unlike day subsistence, the government can see that there is still a good case for retaining some tax relief for overnight subsistence (such as the cost of a hotel room, or an evening meal/breakfast when staying away from home overnight on a business journey), but intends to look at this issue in more detail at a later stage in the review.

There may also be some circumstances where day subsistence would qualify for tax relief under different rules. As it is not the intention to disturb rules other than the T&S expenses rules as part of this review, there may be some circumstances where tax relief for day subsistence is still available.

The government would welcome proposals on other ways to balance the more generous simplifications set out in this document, through restricting tax relief from areas of the current rules where the results could be seen as being overly generous or difficult to justify.

Question 17: Do you agree that removing relief for day subsistence is fair?

Question 18: Are there any particular groups of employees that would be particularly disadvantaged by removing relief for day subsistence? Are such employees in particular industries and are they more likely to receive scale rate payments or be reimbursed for actual expenses?

Question 19: Are there any circumstances where employees would normally need to (rather than choose to) incur a significantly larger expense on their day subsistence than normal due to being on a business journey? Are such employees in particular industries and are they more likely to receive scale rate payments or be reimbursed for actual expenses?

Question 20: Would employers continue to pay day subsistence if relief were removed, and if so in what circumstances?

Question 21: Are there any other ways of balancing the cost of the most generous simplifications set out in the framework that the government should consider?

There are a number of other points of detail that have not so far been considered as part of this review, but which the government intend to include as part of any reform that is introduced as a result of this review. These include the rules for international travel, some of the non-statutory industry specific travel and subsistence allowances, and the issue of record keeping and evidential requirement to show that expenses have actually been incurred.

The government intends to consider these more detailed issues at a later stage in the review once an initial framework is in place, but would still be grateful to receive views on these issues as part of any responses to this discussion paper.

Question 4

4. Responding to this discussion paper

Accepted Answer

HM Treasury and HMRC will consider written submissions addressing the questions and issues raised in this discussion paper. Views on the issues and questions set out in this paper are invited from all stakeholders who operate the current rules, their representatives, trade organisations and any other interested parties.

Responses to this discussion paper are requested by 16 December 2015 and should be sent by email to the review team by using the following address: travelandsubsistencereview@hmtreasury.gsi.gov.uk.

Responses can also be sent to this address:

HMT Travel and Subsistence Review Team Personal Tax HM Treasury 1 Horse Guards Road London SW1A 2HQ

As set out in chapter 1, this discussion paper sets out the principled case for change and does not include any firm proposals. The government will consider responses to this discussion paper and these will be used to inform the development of the government’s proposals which will be published for wider consultation in due course.

Summary of discussion questions