At first glance, this seems unfair because the worker is incurring the cost to do their job; if they didn’t have the job, they wouldn’t be doing the travelling.
HMRC’s view
HMRC approach this from a different angle.
Their argument (and the one which has prevailed) is that the costs are incurred because the taxpayer has made a personal decision to live a distance away from their workplace.
It follows these costs could be avoided or at least reduced if the taxpayer decided to move nearer their workplace.
Different scenarios
There are cases in which it is easy to understand HMRC’s perspective.
For instance, if a taxpayer decides to move house from one area to another for family reasons, then the extra commuting costs are as a result of this personal decision.
Other situations seem less fair.
Take the recent Upper Tax Tribunal case of HMRC v J Kunjur.
The taxpayer was a dentist who lived in the Southampton area.
He secured a training position in a London hospital and due to the length of the commute from Southampton (as well as the fact he was ‘on call’ every so often with the hospital and so needed to be near it), he secured accommodation near the London hospital.
He stayed at the accommodation during the week and on those weekends he was on call.
He claimed the accommodation expenses as deductible from his employment income on the basis if he wasn’t working in the London hospital he would not be incurring the cost.
However, HMRC successfully challenged this, arguing it was his personal choice to pay for the accommodation on the basis his home and family were in Southampton.
As an example if another employee who lived in London already took the job, they would not need to incur these costs.
This case demonstrates the long-standing rule that costs of commuting are not tax deductible and is a reminder of the high bar which applies generally to claiming costs against employment income which must be ‘wholly, exclusively and necessarily’ for the purposes of the performance of the duties of the employment.
Reviewing the rules
While the tax principles may remain largely constant, it is always worth employers reviewing these rules in the context of ever-changing modern work patterns.
A genuinely home-based employee who has no office base will normally be eligible to claim any costs of business travel when they leave their home.
But employers need to be careful when considering each specific case of a remote worker and their travel expenses.
For instance, does the employee’s employment contract mention anything about where the employee is based? Is there a desk and a computer for them at ‘the office’? What do their business cards say about where they can be contacted and is there anything on the business’s website to suggest where they are based?
These are the types of questions which will be asked by HMRC if they were to carry out an employment taxes review.
Recommendations for change
Before it was recently disbanded the Office of Tax Simplification considered the issue of remote working and made various recommendations for changes to the rules with the intention of bringing them in line with current and fast changing working patterns.
Whether any action is taken on these recommendations remains to be seen but employee travel is an area of the tax code which employers should pay careful and ongoing attention to.
The next step
At UHY Hacker Young we are able to advise on the tax treatment of employee travel expenses and all other areas of employment tax. Please contact us through the form below for further information.
