Overview of tax and National Insurance contributions for employee travel (490: Chapter 1)
Basic information about the tax and National Insurance contributions treatment of business travel by employees.
Introduction
1.1
This guide describes the tax and National Insurance contributions treatment of business travel by employees. It explains what counts as ‘business travel’ and, for employees other than those using their own vehicles, the kinds of expenses which qualify for tax relief.
See the how to tax business travel for employees (480:Chapter 16) for information about tax relief for mileage expenses in an employee’s own vehicle. It applies to all employers who pay travel expenses when they:
- reimburse employees’ business travel costs
- pay directly for business travel for employees
- provide travel facilities for employees
1.2
References throughout the guide to ‘employees’ apply equally to ‘office holders’ and ‘agency workers’, where income from the office in question is subject to tax as employment income.
Travel expenses include subsistence costs attributable to the journeys.
Overview
1.3
All income that an employee receives from their employment is taxable. This includes pay, benefits in kind (such as company cars) and any expenses payments (including payments relating to business travel). However, where the employer reimburses expenses incurred in the performance of the duties of the employment, payment should be made gross, with the employee claiming tax relief.
1.4
Tax relief is available in 2 ways, by exemption or by deduction.
By exemption – certain payments or benefits in kind that an employee receives are exempt from tax. This means they’re not taxable. Where a payment or benefit in kind is exempt, employers do not need to report the amount to us and employees do not have to apply for tax relief.
By deduction – certain amounts can be deducted from an employee’s total income before arriving at the amount on which they will be taxed. Where tax relief is available by deduction, the employer must report expenses payments or benefits in kind to us, and employees need to apply to their HMRC office for further tax relief. Some deductions also provide tax relief where employees meet the cost of expenses themselves without reimbursement.
This guide uses the term ‘tax relief’ to cover both tax relief available by exemption and tax relief available by deduction.
1.5
The tax rules determine the amount on which tax relief is due. They do not determine the level of payment or provision an employer can or should make. So the full cost of a business journey may be more or less than the expenses paid or met by the employer.
1.6
In most cases the same general rules apply where an employee personally pays for the travel or where the cost of the travel is met by the employer, or a third party by reason of the employment.
For example, the same general rules apply where:
- the costs are reimbursed
- the costs are met directly on the employee’s behalf
- vouchers (such as travel tickets) or credit tokens are provided to the employee
- travel facilities (such as accommodation) are provided direct to the employee
The basis of tax relief for employee travel and subsistence
1.7
Employees are entitled to tax relief for the full cost they’re obliged to incur travelling in the performance of their duties or travelling to or from a place they have to attend in the performance of their duties – as long as the journey is not ordinary commuting or private travel. The following chapters explain how these rules apply in practice.
There are special rules for working out the tax relief on motoring expenses paid to employees who use their own vehicles for business travel – see paragraph 9.12 of Employers’ reporting requirements (Chapter 9).
National Insurance contributions
1.8
For National Insurance contributions, the position depends on how the travel costs are met.
Where the employer makes payments of, or towards business travel that are reasonable, they’ll be left out of the calculation of earnings when determining the earnings-related contributions due. So there would be no question of a National Insurance contributions liability where an employer makes a travel payment which does no more than reimburse an employee for the full cost of business travel.
However, if an employer reimburses the cost of, or directly pays for, travel arrangements which do more than that, there is a Class 1 National Insurance contributions liability to be accounted for through the payroll in the relevant pay period.
Example
Ian purchases a train ticket for a business journey for £87. His employer reimburses him the full £87. No National Insurance contributions liability arises.
If instead of reimbursing Ian £87, his employer makes him a payment of £100, there is a profit element of £13 which should be added to his other earnings in that pay period for Class 1 National Insurance contributions purposes.
As with the rules for tax, there are special rules for working out the National Insurance contributions on motoring expenses paid to employees for using their own vehicles for business travel – see paragraph 6.3 of National Insurance contributions (Chapter 6).
1.9
Where an employer arranges or provides travel facilities for an employee, if the benefit is exempt from tax it will also be exempt from Class 1A National Insurance contributions.
Where Class 1A National Insurance contributions are due they must be accounted for in the same manner as any other Class 1A National Insurance contributions which the employer is due to pay.
For more information on National Insurance contributions, read National Insurance contributions (Chapter 6).