When does a temporary workplace become a permanent workplace?

Business travel expenses are allowable tax deductions where they meet certain conditions and apply whether:

  • the employee personally pays their own expenses without reimbursement from their employer;
  • the employer reimburses travel expenses paid for by the employee;
  • the employer pays the costs directly on the employee’s behalf;
  • the cost is met by vouchers, e.g travel tickets, or credit tokens are provided to the employee; or
  • the travel facilities, such as accommodation, are provided direct to the employee.

Travel expenses include not only the actual cost of the business journey but all other associated costs, such as subsistence and accommodation, toll fees, car parking and vehicle hire charges.

Where the employer bears the cost of travel expenses and the conditions for ‘on the job’ or ‘to the job’ travel are met, then there is no need for the employer to report the expenses on form P11D. This is because, since 6th April 2016, reimbursed business expenses and benefits are exempt from income tax.

Should the employer not reimburse an employee’s travel costs, then the employee can claim a deduction against their employment income.

‘On the job’ travel

Where travel expenses are necessarily incurred in the performance of the duties of the employment, then tax relief is permitted. This allows for relief to be given to business journeys undertaken during the working day, e.g. travel from the office to client premises.

‘To the job’ travel

If travel expenses are incurred in the employee’s necessary attendance at any place in the performance of the duties of their employment, then tax relief is given to those expenses. Journeys which are wholly or substantially ordinary commuting and private travel are excluded.

Ordinary commuting is travel between:

  • the employee’s home and a ‘permanent workplace’; or
  • a place that is not a workplace, e.g a hotel or someone else’s home, and a ‘permanent workplace’.

No relief is given to travel between any two places that is, for practical purpose, substantially ordinary commuting.

Permanent workplace

A permanent workplace is:

  • a place the employee regularly attends in the performance of their duties of employment; and
  • is not a ‘temporary workplace’.

An employee attends a workplace regularly if their attendance:

  • is frequent
  • follows a pattern
  • is for all or almost all of the period for which they hold or are likely to hold that employment

Temporary workplace

A temporary workplace is one where the employee attends in the performance of their duties of employment:

  • for the purpose of performing a task of limited duration; or
  • for some other temporary purpose.

Even where an employee attends a workplace regularly, it will still be a temporary workplace if their attendance is for the performance of performing a task of limited duration or other temporary purpose.

Where the employee’s attendance at a workplace is for a period of continuous work which lasts longer than 24 months, this is a permanent workplace and not a temporary one.

When a workplace becomes permanent

A period of continuous work is one throughout which the duties of the employment are carried out to a significant extent at that place. HMRC define ‘significant extent’ as being 40% or more of the employee’s working time. So, where a contractor spends 40% or more of their working time at a particular workplace and has been there for, say, 25 months, then this would be a permanent workplace and the costs of travel between their home and workplace would not be allowable.

If a contractor spends one day a week at a workplace for, say, 3 years, the 24-month rule does not need to be considered because they will not have spent 40% of their working time there. They would however still have to consider whether their attendance at the workplace was for ‘some other temporary purpose’. Assuming this were the case, then that workplace would be classed as a temporary workplace and the travel costs between home and workplace allowable.

Where an employee spends 40% or more of their working time at a temporary workplace, that workplace can become a permanent workplace if either:

  • the employee has worked at that location for a continuous period of 24 months; or
  • it becomes apparent that attendance at that temporary workplace will exceed 24 months.

24-month rule in practice

Where there is a change in intention, travel costs up to the point of change are allowable, but costs after that date are disallowed. Given below are some examples as to how this works.

Hassan has worked for his employer for 3 years and is sent to perform f/t duties at a workplace for 28 months. The posting is unexpectedly ended after 18 months. No tax relief is available for the cost of travel between his home and the workplace, because his attendance is expected to exceed 24 months (though in fact, it does not). The workplace is, therefore, a permanent workplace and the journey is ordinary commuting.

Richard has worked for his employer for 3 years. He is sent to perform f/t duties at a workplace for 18 months. After 10 months the posting is extended to 28 months. Tax relief is available for the full cost of travel to and from the workplace during the first 10 months (while his attendance is expected to be for less than 24 months) but not after that (once his attendance is expected to exceed 24 months).

Sarah has worked for her employer for 7 years and is sent to perform f/t duties at a workplace for 28 months. After 10 months the posting is shortened to 18 months. No tax relief is available for the cost of travel to and from the workplace during the first 10 months (while her attendance is expected to exceed 24 months), but tax relief is available for the full cost of travel during the final 8 months (once her attendance is no longer expected to exceed 24 months).

Two-legged test of 24-month rule

For the 24-month rule to apply, both legs of the test must be met, i.e. the employee must have spent, or be likely to spend, more than 40% of their working time at a workplace and they must attend it or be likely to attend it over a period lasting more than 24 months.

A period of continuous work can remain continuous even where there is a break in attendance. See the example below as to how this rule is applied.

Susan is employed as a human resources consultant. She expects to spend all her working time at a client’s site for 23 months. She works f/t at the client’s site for 17 months developing a new staff appraisal system and then deals with unexpected priority work elsewhere for 3 months. She then returns to the client’s site for a further 6 months to coordinate the roll-out of the new system. Susan is entitled to tax relief for her travel from home to the site during the first 17 months because she does not, during that time, expect to be at the site for more than 24 months. She is not, however, entitled to tax relief for her travel from home to the client’s site for the further 6 months. That is because she now expects to spend 23 out of the 26 months at that site, which will be more than 40% of her working time over a period longer than 24 months.

Changes in journey to work

An employee’s workplace may change without significantly affecting their journey to work. For example, where an employee moves offices from Cardiff to Edinburgh there is clearly a change of workplace affecting the employee’s journey to work. However, the position is different if an employee moves to a new office in the adjacent building. In these circumstances there is no significant effects on the employee’s journey to work and under the tax rules there is no change of workplace.

This rule prevents employers from making small changes to the place where an employee works to take advantage of the temporary workplace rules. Where there is no significant change to an employee’s journey the rule operates to treat the two workplaces as being the same.

The basic principle is that a change of location or boundaries of a workplace will give rise to a new workplace where the change has a significant effect on:

  • the journey an employee has to make to get to work
  • the cost of that journey

HMRC’s 490 guidance on employee travel contains more detailed information and examples on the application of the temporary workplace rules.

For further tax advice, get in touch with our Head of Tax Andy Vessey ATT, or for more contractor guides, industry news and IR35 advice, visit our Knowledge Hub.

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