Ordinary Commuting
This is not tax deductible for the employer or employee. In general
terms "ordinary commuting" is where one person starts off at home,
travels to the same work site every day to complete his work and then
returns home, and the person continues to do that until the employment
is terminated.
When the travel is classed as "ordinary commuting" then the
workplace will be a "permanent workplace" i.e. one that does not change
within the employment.
Therefore if the employee remains at the same location for all of
their employment then it is "ordinary commuting" and is not a business
expense as the employee is working at a "permanent workplace".
Temporary Workplace
For travel expenses to be a business expense then the workplace
attended must be a "temporary workplace". A "temporary workplace" is
defined by legislation in Section 339(3) ITEPA 2003 and explained by
HMRC in EIM32075
A temporary workplace is a workplace attended by an employee for a limited duration of time or for a temporary purpose.
A worker who attends a temporary workplace will work for one
employer and will move from one workplace to another workplace during
that employment.
A director of a Limited Company engaged on various assignments
for the employer, the Limited Company that he/she owns shares in, will
be attending a temporary workplace if they attend for less than 24
months.
The director will need to attend more than one workplace during the
employment with the Limited Company for any workplace to be a temporary
one. If a director only attends one workplace during the whole of the
employment with the Limited Company that workplace will not be a
temporary one and the travel expenses will not be claimable.
The duration attended at a temporary workplace must be less than 24
months in total, if the workplace is attended for more than 24 months
the workplace becomes a permanent workplace from the start of
the attendance at that workplace and therefore all expenses from the
start of the assignment are not able to be claimed as travel expenses.
The "24 month rule" is part of Section 339(5) and (6) ITEPA 2003 and HMRC give guidance in EIM32080
Permanent Workplace
If the employment itself is for a limited duration and only one
workplace is attended then that workplace is the permanent workplace
for that job, even if it is just for one day for one workplace for one
employer.
If an employment is for a specified period of time or for a
particular project that is situated at one workplace then HMRC will
consider this workplace a permanent one, and travel expenses will not
be claimable.
Expectation
HMRC will take note of evidence that suggests there was an
expectation of the workplace to be a permanent one, and will disallow
travel expenses claims where the expectation is that the workplace will
be permanent.
So if a contract is signed for more than 24 months for a project on
one location then that location will be a permanent workplace from the
start.
If the contract is for a shorter period, say 3 months, but there is
evidence to suggest that the workplace and the contract will remain the
same for at least 24 months, then again the expectation is there and
the workplace is a permanent one.
Employment
Where a director is employed by the company to complete a series of
assignments for the Limited Company that he/she owns then the director
will receive a salary for that employment. Please see our article on Director's Salary for the most tax effective salary to pay.
It will be important that between each assignment the director is
still paid whatever salary would be regular for them to be paid as this
means that the employment, from a tax perspective, is maintained
between assignments.
The 40% rule
Where the workplace is attended for more than 24 months then there is a "40% rule" that is applied to the workplace.
Where the total amount of time spent at one workplace is 24months
then if 40% or more of the available worktime during that 24months was
at one workplace then the travel expenses are become unclaimable from
the point at which 24 months has been completed.
This is important in cases where an employee works on one site,
moves to another site and then returns to the first site. If 24 months
have been completed on the one site in total, then if 40% of the
available time has been on that one site, then travel expenses cease to
be claimed from the point where 24 months are exceeded.
As an example of how this works say an employee had the following engagements:-
6 months at workplace 1, 6 months at workplace 2, 6 months at
workplace 3, 12 months at workplace 1, 6 months at workplace 4, 6
months at workplace 1 then a final 6 months at workplace 1 ( Total
time window in view 48 months, 4 Years)
In the first 6 months workplace 1 is viewed as a temporary workplace
In the second 6 months workplace 2 is viewed as a temporary workplace
In the third 6 months workplace 3 is viewed as a temporary workplace
In the next 12 months workplace 1 is viewed as a temporary workplace as 18 months have been completed on workplace 1
In the next 6 months workplace 4 is viewed as a temporary workplace
In the next 6 months workplace 1 is viewed as a temporary workplace.
In the next 6 months workplace 1 is viewed as a permanent workplace
from the start of this period as a total of 24 months have been
completed at this workplace out of 42 months (57%) at the beginning of
the period. At the end of the period a total of 30 months have been
completed out of 48 months in total (62%) and so at the end of the
period workplace 1 is still a permanent workplace.
Depots/HQ's/Base Location
In the event that a Director travels to an HQ/depot or is based at a
Location of the client and then goes to a workplace to fulfill an
assignment. If the depot/HQ/base location is the same , but the
workplace is different, it is likely that the travel to the
depot/HQ/base location will be ordinary commuting, but this is a more
specialist area and its best to take advice for your particular
circumstances.
Defining the difference between two workplaces
For a workplace to be different then there must be a difference
between the journeys to the different workplaces. For instance HMRC
would view two workplaces that are near Bank Tube Station in London as
the same for the purposes of this legislation as the journey undertaken
by the employee would essentially be the same. If a different journey
is undertaken it is more likely that each workplace is different. The
question of "how different a journey ?" is subjective and if you have
any doubts then take advice, but basically if you end up at the same
public transport terminal or you use the same roads, then the it is
likely you are at the same workplace.
HMRC give guidance on this at SE32089 and also details further examples of where Paragraph 5(3) Schedule 12A ICTA 1988 would apply in SE2280