Tax relief on travel costs ‘’making a claim in your personal tax return and a reminder these rules also affect employees working through intermediaries’’As we approach the deadline for submitting tax returns again, many accountants will be provided with receipts for train journeys and mileage logs from clients wishing to make a claim and obtain a tax refund from their tax paid in their employment role.The general rulesThe general rule for employees claiming tax relief for travel expenses through their tax return or government gateway account:Section 336 ITEPA 2003Is the employee obliged to pay expenses; andAre the expenses incurred ‘’wholly, exclusively & necessarily’’ in performance of duties?‘’Necessarily’’ means could the employee do their job without incurring that expense?Yes – Then this is not necessary and not deductible.No – Then this is necessary and tax deductible.HMRC are extremely strict in this area.Costs that are considered allowable travel costsCovered in sections 337 and 338 ITEPA 2003Travel costs are deductible if:Necessarily incurred on travelling in the performance of duties; orNecessarily attendance at any place of work in performance of dutiesNo deduction for ‘’expenses of ordinary commuting’’This includes:Between home & permanent workplace orBetween a place that is not a workplace & permanent workplaceExamples of places which are not a workplace would be a hotel or a colleague’s home.HMRC accept that travelling directly to a client’s premises would be tax deductible assuming this is a temporary workplace; for example, attending a client’s premises for an audit for 2 weeks would be seen as a temporary workplace.‘’To perform a task of limited duration or for some other temporary purpose’’.A workplace is not a temporary workplace if the duration of attendance is for continuous work lasting more than 24 months.After 24 months, a temporary workplace becomes a permanent workplace, and upon the agreement of any new contract, it should be treated as such; therefore, commuting costs are no longer tax deductible.Where the initial contract was agreed for say 3 years at the outset, the contract of employment is with a workplace that is seen as a permanent workplace from the outset, on this basis commuting costs are not allowed from day one.This is because it is a permanent workplace from day one.A reminder of changes implemented in 2016/17 affecting clients who supply their services through intermediariesFrom 2016/17 onwards, there are targeted anti-avoidance rules applying to travel by employees engaged through employment intermediaries. This legislation is intended to bring the position for those engaged through employment intermediaries into line with all other employees. The provisions prevent an individual who provides services through an employment intermediary such as an umbrella company or a personal services company from claiming ordinary commuting expenses. It does this by treating each engagement as a separate employment for the purposes of deciding whether the worker has a permanent workplace.In effect, this means only a worker who is hired under the expectation that they will work at different locations, ie as part of the same engagement with the same client, is likely to be able to claim expenses deductions for travelling to the client. Those more typically hired to work at different locations for different clients would see each client engagement treated separately for this purpose, and travel to each client location would be disallowed. The restriction is only intended to apply where the individual is subject to control, supervision or direction, by the deemed employer or any other person.Who the changes affectedThe changes affected workers personally providing services to clients through an ‘employment intermediary’ ESM5550 which could be:an agencya recruitment or employment businessan umbrella companyan MSCa PSCWhen the employment intermediaries travel expense provisions apply, workers engaged through an ‘employment intermediary’ can’t claim tax relief or a disregard for NICs on the travel and subsistence expenses, such as the cost of lunch or dinner or overnight accommodation, they incur on an ordinary commute from home to work. The employment intermediaries’ expense provisions apply regardless of how workers are remunerated.ESM5510 – introduction: the employment intermediaries travel expense provisionsIncome Tax (Earnings and Pensions) Act 2003 (ITEPA), Part 5, Chapter 2, sections 337 to 342Social Security (Contributions) Regulations 2001, Schedule 3, Part 8, paragraphs 3, 3ZA & 3ZB IntroductionSections 337 to 342 of Income Tax (Earnings and Pension) Act 2003 (ITEPA) prescribe when employees can obtain tax relief for travel expenses. For this purpose, ‘travel expenses’ include the actual costs of travel together with any subsistence expenditure and other associated costs that are incurred in making the journey – EIM31815. When these expenses are reimbursed there’s a corresponding National Insurance contributions (NICs) disregard.Our summaryThe main guidance that tax advisers can get from this article is just because a client comes to you saying I have incurred travel expenses during my employment role, doesn’t mean a claim can be made for tax relief in their return and in the majority of cases any claim will be challenged by HMRC.Below are details of two recent cases where HMRC has challenged claims made by taxpayers, along with additional links to HMRC guidance discussed in this article:Hamish Taylor v HMRC (2020) TC07893Narinder Sambhi v HMRC (2018) TC03508https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim31815https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32125https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm5550Gavin AndersonTax Consultant