A Look at Recent Issues Relating to Travel and Subsistence

Mark Morton discusses the recent issues relating to travel and subsistence ahead of our Tax Update courses this Spring.

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

Hello everybody. Welcome to this Mercia podcast. It's Mark Morton here. We're now in the third week of February. It is picking up, it is picking up in terms of weather and whatever else. Looking a bit more spring like out there. Just a short podcast with a quick review of travel and subsistence rules. 

Having started traveling around again over the last few weeks. Doing some presenting to humans, which is always great. What is quite noticeable is that there's a lot of traffic out there. And I would imagine a lot of it is business related. Travel and subsistence rules seem to be raising their head again. 

Interestingly we have quite a large number of cases floating around through the tribunal system over the last year or so. Some are financially big, they're millions and millions of tax and national insurance. Thank you. Purely based on, you know, did we pay 45p a mile or not? Was it tax free or not? 

Some of it. But also some from the individual's perspective. So we're getting cases looking at the employer's aspect of it. And of course, if an employer is paying 45p a mile, And it isn't tax relievable, then of course that's a pay issue and an NI issue to them, potentially. On the flip side, we are seeing cases where the individual has not been reimbursed at what they believed, you know, the appropriate rate was, in whole or in part. 

They are attempting to claim tax relief on it, and the revenue are stepping in and saying, we don't think that is business related. I think one of the quite interesting things with, you know, travel and subsistence over the years. It is simple. It is straightforward. The rules primarily have not changed since 1998 and they are summarised in a lovely bit of guidance IR 490, which is a hundred pages long. 

So we've had the basis of the rules for a long time. The hundred pages of revenue guidance The actual legislation is not that long so the actual guidance is more about the revenues interpretation of the law in respect to particular business working models, etc. Some of it has been tested in the courts, some hasn't, but of course if you're paying out a lot of travel, and by travel and subsistence I should mean not only mileage, you know, it is everything that goes along with that, whether it's flight costs, hotel costs, whatever it may be. 

As you know, ordinary commuting is not acceptable but the legislation denies tax relief for journeys which are home to a permanent place of work. What is a permanent place of work? Anywhere which is not a temporary place of work. So you get this wonderful sort of cyclical piece of legislation. 

Temporary place of work, somewhere you go for less than 24 months for less than 40 percent of your time, And that it, the revenue have always interpreted that as a dual test, to have a problem, you've got to fail both tests. You're going to be going somewhere for more than 40 percent of your time for more than 24 months. 

Which is a high bar, I think, for a lot of people. Having said that, I do remember last year seeing one of the readers queries in Taxation about this. And essentially the essence was this owner managed business. The through a limited company the owners had been working on a particular site and they were reaching sort of 24 months and they appreciated they wouldn't get tax relief from that point onwards. 

Of course, the thing that stuck out to me there was, well, of course, if you knew at the start the contract was going to be going for more than 24 months, then potentially you weren't getting tax relief from day one. So there is that aspect of it. I think for normal salaried employees. pretty unusual sort of issue. 

The second one which is causing I think possibly more headache to employers over time is the all or most of your period of employment. So there's been a rule in the legislation forever and a day Which says if you go somewhere for all or most of your period of employment, then that isn't a tax reliable journey anyway. 

So that was designed to deal with fixed term contracts and the like. When you look at how that legislation has been applied, it tends to be more in terms of agency workers and the like. And the revenue have started to push this issue and say you had all these workers who were going to particular sites for a day, a week, a month, and we thought you caught by that all or most of your creative employment. 

Now, one of the interesting things with this, to me, is did these businesses not think about it? Did they misinterpret the rules? Because their argument is, oh no, there was an overriding employment contract with these people. Well, actually There wasn't. They were engaged for a week, a month, whatever it was, a particular journey. 

And of course there, the issue then becomes a Peugeot and an NI issue. There has been a third variation of this that I won't bore you with too much, but really designed to deal with people working through service companies, agencies, and the like. And of more recent times, so 2016 onwards, A particular rule that looks at individuals being engaged via third parties, whether that's a service company or whatever, and what it does, if you are supervised or controlled, directed, etc, by the client, so if I'm working through a service company for a third party, What it then says is, if I am supervised, directed, or controlled by the client, then instead of being an employee of my own company, where you get 24 months, 40 percent of your time, I would be deemed to be an employee of the end client, and therefore, of course, potentially, that would be ordinary commuting, it would be all or most of the period of that deemed employment, etc. 

And of course denying tax relief to that middle entity, whatever that is, the agency, the service company, whatever. Now we haven't seen any court cases on that, but I think there would be a number of clients in your sort of client base, which working through their own service companies may have a problem if they go out traveling around servicing contracts with clients. 

So we're in a period at the moment where the revenue have an interest in travel and subsistence. There is nothing purely new in it at the moment. It is the application of those historic rules. Okay. And there is a lot of money involved. So anyway, it might give you something to think about. If you'd like to discuss it more deeply, please come on our tax update course, our spring tax update, whether that's face to face, it'd be great to see you otherwise online. 

I probably won't see you because you won't have your camera on, but one way or the other, if you'd like to discuss it further, hopefully I will see you on one of those courses. Okay. Take care, everybody.