Employees’ responsibilities for travel expenses (490: Chapter 12)
Find out what responsibilities your employee has and the records they need to keep when claiming travelling expenses.
Record keeping
12.1
Employees, like other taxpayers, have to keep records:
- so they can complete a tax return fully and accurately if they get one
- so if they do not get a tax return they can tell us by 5 October after the end of the tax year if they have received income or gains which we do not know about
- if they want to claim tax relief
They should keep these records for at least 22 months after the end of the tax year to which they apply.
12.2
Employees do not need to enter on their tax returns – any payments or provisions which are covered by an exemption or on a PAYE Settlement Agreements (PSA).
Where an exemption or PSA are in place, employees are not taxable on the expenses payments they receive under the terms of that exemption or PSA.
Where the employer pays or meets less than the full cost of business travel the employees are entitled to further tax relief.
The employees are entitled to tax relief for the part of the cost of their business journeys that is not reimbursed or otherwise met by their employer.
Example
Yvette lives in Basingstoke and has a permanent workplace in London. One day, Yvette travels by train direct from her home to meet a client in Cambridge.
The ticket costs £65 but Yvette’s employer only reimburses her what it would have cost to make the journey from London, £20.
Yvette is not taxable on the £20 paid by her employer because this is covered by the exemption. Yvette is entitled to further tax relief of £45 which is the extra it cost her to make the business journey over and above the amount her employer paid.
Yvette can get tax relief, but not National Insurance contributions relief, for the £45 by writing to her HMRC office.
She is not entitled to tax relief for the £65 total cost of her ticket because she has effectively already had £20 of tax relief on the payment she received from her employer.
12.3
It helps employees if their employers tell them about exempt payments and PSA items which apply to them. However, there is no legal obligation on employers to do so.
12.4
With respect to travel, the most important things which employees should keep are:
- P11D details of expenses payments and benefits in kind
- details of claims for expenses they made to their employer and receipts which supported those claims (unless these are held by the employer)
- records they make themselves, such as mileage details where they use a car (either their own or a company car) for business journeys
12.5
Employees should check all information which they receive from their employer. If they think it’s wrong or incomplete it’s usually best if they approach their employer to clarify the position.
If the employee is still not satisfied, they should tell their HMRC office.
12.6
Find out more information on record keeping for employees in leaflet RK BK1, ‘A general guide to Keeping Records for your Tax Return’.
Employees who need to complete a tax return
12.7
Employees who get a tax return should, unless the item is covered by an exemption or PSA, use it to report:
- all payments made to them
- all payments made to a third party on their behalf
- the cash equivalent of any facilities provided to them or their family by reason of their employment
Example
George travels on business. He travels from Plymouth to Bedford using a train ticket provided by his employer.
His employer owns a residential training facility in Bedford where George stays during the 2 weeks he is working locally. He pays for his meals himself and the costs he incurs are reimbursed by his employer.
The cost of the ticket provided, the full amount of the reimbursements and the cash equivalent of the accommodation provided would all be fully deductible so under the terms of the exemption for paid or reimbursed expenses are all exempt and George will not need to report them on his tax return.
Employees who do not need to complete a tax return
12.8
Employers give us information about the income and benefits paid or provided to their employees. That means we can usually make the calculations necessary to change PAYE tax codes.
Employees should contact us if:
- they identify errors or omissions in the information provided by their employer
- there is a change in their circumstances, for example if they want to claim an allowance or tax relief which has changed or which they have not had before
- they have not had all the tax relief for business expenses to which they’re entitled (paragraph 12.9)
- they have income, not taxed at source, which they have not reported to us
Getting tax relief for expenses
12.9
Employees are entitled to tax relief against income chargeable to tax as employment income for the full cost of business travel.
If they get a tax return they get tax relief by entering the appropriate amount on the return. If they do not get a tax return they can complete a form P87 or they can write to us.
12.10
Employees must be able to substantiate the statements they make. Where tax has been underpaid because an employee has had tax relief to which they were not entitled, or the amount of tax relief has been overstated, we will seek to recover from the employee the tax lost, together with interest and, where appropriate, penalties and a surcharge.
Employees who use their own cars for business travel
12.11
Employees who use their own cars for business travel can get mileage allowance tax relief based on a set rate per mile for specified types of vehicle.
Get more information on how to work out the tax relief on business travel mileage for employees’ own vehicles.