The present tax rules in relation to travel and subsistence came into existence in 1998 and, given the changing world in which we live, there is a real need for these to be updated to reflect how employees undertake their work.
The Office of Tax Simplification (OTS) has been asked by the government to visit these rules and update the guidance to meet the way in which employees presently work. We await the issue of its updated guidance.
These rules set out what is considered an employee’s ‘base’ for tax purposes. It is this that determines whether a journey is business or private, and whether therefore the employee can re-claim travel and subsistence expenses.
The starting position for the present rules is that a base is somewhere at which an employee is located for 40% or more of their working time.
These rules mean that some staff can typically have two bases for more than two days a week. A base is not something that an employee decides upon, but which is either prescribed in their contract of employment or literally based on how the employee works (substance over form).
Many employees today may consider themselves to be home based, or in fact to be itinerant with no real base. However, this position may not be accepted by HM Revenue and Customs (HMRC). Someone who makes occasional visits to an office location may find HMRC suggesting that this is their base, even if they spend less than 40% of their time at this location. This is because of how they work and what they do when they visit that place of work.
We have seen HMRC look closely at this at the time of an employer compliance review, and getting this wrong can prove expensive.
Employers that have not looked closely at their travel and subsistence claims to ensure that they are tax allowable face the risk of a possible shock if HMRC knock on the door.
Alastair Kendrick is a tax director at MHA MacIntyre Hudson.