Hybrid working – What does this mean for travel and subsistence expenses claimed by employees? 

Covid 19 and the associated lockdowns have resulted in home office and hybrid working on a scale which is unprecedented and which is – realistically – here to stay.  This means that for many millions of workers, they may either work primarily from a home office (at their choice) or divide their time between a home office and a traditional workplace (say 2-3 days per week in each).

So what do these new working patterns mean from a travel and expense policy perspective?  Does it change anything?  Or can employers simply continue to reimburse expenses as they ‘have always done’?

Firstly, it is important for employers (and advisors), to recognise that there has been no change to the underlying travel and expense rules since at least the 1990s.  So, in simple terms, this does mean that many concepts and requirements for business expenses to be ‘qualifying’ from a tax perspective are not really ‘adjusted’ to the modern working world.  Particular areas which could cause problems for employers on a going forward basis are:

1. Expenses related to ‘detached duty’ (temporary workplace) arrangements
2. Travel which is between ‘two workplaces’
3. Is something ‘ordinary commuting’

In practice, there is significant overlap between the above issues.

Temporary workplaces – what is the definition?

These are places which workers attend on a limited basis – that is for a period which is less than two years in duration or is purely on a temporary, ad-hoc basis.  This can mean, for example, that someone could attend ‘X’ on an ongoing basis for more than two years, and still in some circumstances have the location regarded as a temporary workplace.

For example, if location ‘X’ involves the worker spending less than 40% of their time in that location (and there is no fixed nature to such trips), this could easily qualify as a temporary workplace in many situations.  In which case, for example, the costs of travel from someone’s home to that location could be paid on a tax-free basis.  However, care needs to be taken in this regard, as in HMRC’s view, it is quite possible for workers to have two (or more) fixed workplaces.  For example:

1. What happens if the individual is always required to spend say two set days per week in location ‘X’ and this arrangement is expected to be permanent?
2. And what is the position for a non-executive director who only spends one day per month at the company’s premises (i.e. to attend board meetings), with any other duties (preparation etc.) being done at home?

The reality is that HMRC would not normally accept that either of the above situations are ‘temporary workplaces’ from a travel expense perspective.  The fixed nature of the working pattern in (a) above would suggest this is a fixed place of business (despite the 40% requirement not being exceeded), whilst HMRC would argue in (b) that board meetings are ‘always’ expected to take place at that particular location and that this is therefore a permanent workplace innately.

However, what would happen, for example, if because of hybrid working it became standard for most board meetings to be held on a ‘virtual’ basis? Would it then be possible to argue that travel expenses are allowable if say 2-3 board meetings per annum are still held on a face-to-face basis?  The answer is ‘perhaps’ – it is not yet clear how HMRC would treat such situations and it could easily depend upon precise ‘facts & circumstances’ in each particular situation.

Is home office working a clear requirement of a role?  How does this impact the ‘home to office’ commuting position?

Employers may well find that many employees (and indeed their managers or supervisors), may well regard their home office as a ‘permanent workplace’ – and indeed from a common sense perspective, it may well be this.  However, employers need to understand that what one feels about a workplace in an everyday perspective, doesn’t directly impact the tax rules or interpretations.

For example, if an employer has absolute flexibility about home office working and lets employees choose whether they work from the office or at home, this doesn’t automatically mean that the home office is a particular worker’s permanent workplace and the company’s office a ‘temporary or 2nd workplace’.  In many such cases, it may be quite possible for HMRC to argue that:

• The regular company office remains the worker’s permanent workplace; and
• The home office is simply being used as a ‘personal preference’ of the worker.

In this case, any reimbursement of travel expenses by the employer to the worker for travel to the formal office would be a ‘taxable perquisite’ and need to be reported for tax purposes (either via a payroll or potentially as part of a PAYE Settlement Agreement (PSA)).

So what factors does one need to consider in this regard?  In practice, each employer situation may be unique, but factors which need to be considered include:

1. Does the worker genuinely need to be based at home?  For example, this might well be appropriate for a travelling sales representative, whose job is to fundamentally visit clients within a particular geographical region.
2. What space is available in the office?  Many employers retain extensive office space, for example, which employees can easily book into on a day-by-day basis.
3. What does the employment contract (and other employee-related paperwork, e-mails  etc.) indicate is someone’s innate work location?  For example, it may well continue to refer to someone being based at location ‘X’, but having the flexibility to work from other locations where that is acceptable to the line manager.

Whilst it is certainly possible for a home office to be a worker’s permanent workplace (and hence for travel expenses to a company’s office to be allowable business expenses), HMRC have stated that they usually regard home office working as a ‘personal choice’ rather than a business requirement.  Hence employers providing expense reimbursements in this area need to be sure of their position and ensure back-up documentation is in place, in case of a PAYE audit.

Summary and final thoughts

The reality is that as one should perhaps expect, the changing nature of work for many people means that there is still some uncertainty re how modern working will interact with travel and expense rules which were designed in a different time and which are – in many respects – out of date for today’s working patterns.  However, sadly this very fact means that the risks for employers (and advisors) are perhaps greater than ever before and one realistically needs to expect that this will be an area which is of increasing interest to HMRC (via employment tax reviews) over the coming years.  As such, it is important for employers to review their policies and processes in this regard as a matter of urgency to:

1. Ensure that key staff are properly aware of (and trained on) the rules and regulations as they apply at the present time
2. There is clear, written policies in place re the reimbursement of travel expenses
3. Have a clear policy for reviewing any developments in this regard, so that their policies can change and adapt to any new developments in this area

Otherwise, in the case of a PAYE audit, continuing to simply reimburse expenses based on out-dated norms and practices could prove very expensive to a business.

Would you like to know more?

If you would like to discuss the above and how it may impact you, please contact Robert Salter using the form below.

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