The tax treatment of travel expenses, like many other things in tax, can be finely balanced. The terms and conditions in documents such as employment contracts may be crucial.
An employee can generally claim tax relief from their earnings for travel expenses if certain conditions are satisfied. The tax legislation provides that a deduction is allowed if the employee is obliged to incur and pay the travel costs as an employment holder, and the expenses are for the employee’s necessary attendance at any place in the performance of the employment duties (ITEPA 2003, s 338(1)).
However, an employee cannot claim tax relief for the cost of ‘ordinary commuting’, such as travel between home and a permanent workplace. As a general rule, a ‘permanent workplace’ is a place which the employee regularly attends in the performance of employment duties, which is not a temporary workplace. The tax legislation states that a workplace is permanent as opposed to temporary if either it forms the base from which employment duties are performed, or if the tasks to be carried out in the performance of those duties are allocated there.
In addition, a workplace is not regarded as temporary if (among other things) the employee works there continuously for more than 24 months, or for all (or almost all) of the period of the employment (ITEPA 2003, s 339).
Temporary or permanent?
The question of employee travel expenses and whether workplaces were ‘permanent’ was considered in a recent First-tier Tribunal case, Ratcliffe v Revenue & Customs  UKFTT 420 (TC). In that case, Mr Ratcliffe claimed tax relief for travel expenses relating to journeys made in his own car. He worked for the same employer, doing the same type of work, at different power stations in the UK, under two different types of contract for the period in question:
•‘Retainer contract’ – requiring Mr Ratcliffe to work at various sites designated by his employer; and
•Short-term contracts – specifying the power station where he was to report for work.
Mr Ratcliffe claimed tax relief for the cost of journeys between home and his lodgings near the power stations, and between his lodgings and the relevant power station. HMRC took the view that he attended a temporary workplace under a retainer contract (i.e. tax relief claims for travel expenses were allowed), but attended a permanent workplace under the short-term contracts (i.e. tax relief was denied). Mr Ratcliffe appealed to the tribunal.
The tribunal held that each contract should be treated as a separate contract of employment, rather than a continuous one with the same employer. The short-term contracts required Mr Ratcliffe to work at a particular power station. He worked at one power station for the duration of the short-term contract. The power station specified in each short-term contract was therefore his ‘permanent workplace’. An employee’s travel expenses between home and a permanent workplace are not allowable for tax purposes.
Consequently, Mr Ratcliffe’s travel expenses relating to the retainer contract were allowed. However, his travel expenses in respect of the short-term contracts were not allowed, and his appeal was dismissed.
It’s all in the contract
Can the terms of a contract really determine whether travel expenses are allowable? Based on the tribunal’s judgment in Mr Ratcliffe’s case, it can. It would seem that if Mr Ratcliffe’s short term contracts had been ‘retainer contracts’ instead, his travel expenses would have been allowable. The tribunal said:
“Although we accept that the essence of the type of work performed by the Appellant under retainer contracts and short term contracts was the same, this is a case where the contractual provisions in each type of contract determines the tax treatment as a matter of tax law.”
Decisions of the First-tier Tribunal do not generally create a binding legal precedent. In addition, HMRC sometimes argue that a case (on which a taxpayer is seeking to rely) is not relevant because it was decided on its own specific facts. However, the Ratcliffe case is likely to be persuasive when arguing for a deduction of travel expenses in similar circumstances involving short-term contracts and various unspecified sites or workplaces.
When working for the same employer: (a) under short term contracts and (b) at different sites, if travel expenses are incurred, ensure that the contracts do not specify a particular site or workplace. On the basis of the Ratcliffe case, the contracts should allow the employer to designate whichever sites or workplaces it chooses from time to time; and each contract should provide that any previous employment does not count as part of a continuous period of employment (Note - the Ratcliffe case can be accessed via the British and Irish Legal Information Institute website: www.bailii.org/uk/cases/UKFTT/TC/2013/TC02814.html).