Tax Deductibility of Employee Travel Costs: HMRC’s Ruling and Implications
It has long been established in tax law that employees cannot deduct the costs of traveling from home to work for tax purposes. While this may appear unfair on the surface, the UK’s HM Revenue and Customs (HMRC) takes a different approach to this issue.
According to HMRC, these costs are incurred because the employee has chosen to live a certain distance away from their workplace. The argument is that if the employee decided to move closer to their place of work, these expenses could be avoided or minimized.
In some cases, HMRC’s perspective is easier to grasp. For example, if an individual decides to relocate to another area for personal reasons, and consequently, incurs additional commuting costs, these expenses can be regarded as a result of their personal decision.
However, some situations may seem less fair. An interesting case that highlights this was the recent Upper Tax Tribunal case of HMRC v J Kunjur. Mr. Kunjur, a dentist, lived in Southampton but secured a training position in a London hospital. Due to the lengthy commute and the fact that he was occasionally on call at the hospital, he decided to secure accommodation near his workplace, staying there during the week and on weekends when he was on call.
Mr. Kunjur claimed the expenses for this accommodation as deductible from his employment income, arguing that if he didn’t work at the London hospital, he wouldn’t incur these costs. However, HMRC successfully challenged this claim, stating that it was his personal choice to pay for the accommodation since his home and family were in Southampton. They argued that if another employee who already lived in London took the job, they wouldn’t have to incur these additional expenses.
This case illustrates the long-standing rule that commuting costs are not tax deductible and serves as a reminder of the high threshold for claiming costs against employment income. To be eligible, expenses must be deemed wholly, exclusively, and necessarily incurred for the performance of employment duties.
While the tax principles remain relatively constant, it is crucial for employers to periodically review these rules in light of changing work patterns. For employees who work primarily from home without a fixed office base, they are generally eligible to claim business travel costs when they leave their home.
However, employers must exercise caution when considering the specific circumstances of remote workers and their travel expenses. Factors such as the employee’s contractual terms regarding their workplace, the presence of a dedicated office space or equipment, and even information found on business cards or the company’s website can influence HMRC’s perspective during an employment taxes review.
Although the Office of Tax Simplification (OTS) had previously considered remote working and made recommendations to align the rules with evolving work patterns, it remains uncertain whether these recommendations will be implemented. Yet, it is crucial for employers to remain attentive and mindful of the tax treatment of employee travel expenses.
At UHY Hacker Young, we specialize in advising on the tax treatment of employee travel expenses and various other areas of employment tax. Please feel free to contact us using the form below for further information.
