When can hybrid workers claim travel expenses?

Nearly half of employees are trying to persuade their managers to allow them to work from home to save on fuel costs. Two in five employees would like to work from home all or most of the time going forward. So, if hybrid working employees work mostly from home are they entitled to claim travel expenses for the days they commute to the office?  We’ll consider that.

People Management reports on the poll of almost 3,000 workers by Randstad UK which found that 45% were pushing for more home-working amid the cost-of-living crisis. The findings follow a huge increase in the cost of petrol in recent months, with separate research from the RAC revealing that the cost of filling the car rose sharply in March. To add to the problem, in separate research by the CIPD - a survey of more than 1,000 UK-based managers - 48% of employers said they were not planning to give pay rises this year due to cost pressures they are facing. 

Those cost pressures are likely to result in an even greater push by employees to be allowed to work from home. So, to go back to the question, if hybrid working employees split their time between home and the office are they entitled to claim travel expenses for the days they commute on those office days? It would be an attractive perk, and, in the current climate, it is one being considered by many employers, including a number of our clients. We know that business travel can be reimbursed tax free but does this count as business travel or not?

It all turns on a central question which the tax law poses which is what is the employee’s permanent workplace? So, has the move to a hybrid working arrangement changed the situation, switching the employee’s permanent place from the employer’s office to the individual’s home? As you’d expect HMRC has something to say on this. They make the point that in many cases home working is a personal choice. So, while a home may also be a place of work, it’s not necessarily a permanent workplace for tax purposes. If the employee still has to be in an office for part of the week, then the office is likely to remain as their permanent workplace. In this situation, the Revenue says, unless the home is also accepted as a workplace their travel into the office each week will be regarded as a normal commute. It follows, in that situation, if employers reimburse those home-to-office commuting expenses, they will be taxable and liable to NICs. 

A failure to understand that point is landing a number of employers in hot water, facing costs they didn’t appreciate. So, let’s look at this problem and what employer’s need to be alive to when rolling out their hybrid working policies. Chris Thomas is a tax specialist who joined me by phone to discuss this:

Chris Thomas: “So obviously we all know that the working world and, especially, where work is done has been very much affected< very much in flux, due to the pandemic and also that it's likely to look substantially different going forward to what it has historically with the introduction of new hybrid working arrangements and such. Now, a lot of companies will obviously still be working through the details of how that's going to operate in practice and the implications of it on a number of different levels but one of the considerations that ought to be thought about when you're having those discussions is how you deal with travel expenses which might be incurred by the employee in moving between the various places where they're working, so home, the principal office, or the places where they might be doing work. Now, that's always been something of a complicated area with quite a lot of different permutations depending on particularities of the arrangements in any given case but, on the other hand, actually, for a lot of employees who were just doing five days a week in the office, it was reasonably straightforward because their home to work commuting was exactly that, and no one expected the travel costs for that we're going to be reimbursed. Yes, if they went somewhere else to work then it would be but, generally speaking, it was pretty clear. I think, unfortunately, going forward, it's likely to be somewhat less clear and this is why this is something now that employers should be thinking about, so understanding what they can and can't do and how they then present that to employees in terms of managing their expectations.”

Joe Glavina: “So what does the tax law say about it Chris?”

Chris Thomas: “The basic principle for tax purposes is that if you're travelling to somewhere that's a permanent workplace then, generally speaking, if your expenses are reimbursed for that that is likely to be tax deductible, so it would be a benefit in kind, whereas if you're going somewhere that is classed as a temporary workplace then, generally speaking, those expenses if reimbursed to you, would not be taxable. So that sounds reasonably straightforward but, unfortunately, isn't so much in practice because the question that arises is, well, what actually is a permanent place of work? What's your main place of work? Is that still what was formerly the place that you went for five days a week to the office? Is it your home? Is it somewhere else? Do you even have one? These are all questions that will vary, the answers will vary, depending on the particular case. But certainly we're seeing from a number of clients there's a lot of demand from employees to be classed as home based on home based contracts and there may be a number of reasons for that but one of them, I think, is the hope or expectation that in doing that it gives them an entitlement to claim travel costs when they are travelling to any other site, including what might have formerly been their main office. Now obviously there's a commercial decision for the business as to whether it does or doesn't do that in light of the ‘war for talent’ and all of these considerations but it's important, I think, when they're forming a policy on that to understand the parameters from a tax perspective as to when actually would it be tax free or not because, unfortunately, it isn't quite as simple as your average employee might think, in that, oh, well, you know, I work from home three days a week so therefore home is my main workplace and anywhere else I go could be tax free. It isn't quite that simple because the office could potentially still be your permanent workplace even if you're not going there all that often. HMRC has got particular views on when your home can be classed as a permanent workplace such that, actually, you could get tax relief if go to somewhere else that's permanent workplace. There will be categories of employees who, perhaps more widely, given the nature of their roles or arrangements is changing such they're going to other places and the question is how are those going to be treated? So, I think it would merit a wider review, really, of the whole way in which travel expenses are treated by the business and, as I say, to understand what you can and can't do and to factor that into the policies that are being developed and the expectations that employees might be forming so they can be appropriately managed.”

If you are rolling out a hybrid working policy, then be aware the CIPD has just published an update on flexible and hybrid working practices. As the report makes clear, it comes at a time when almost two-fifths of employers are planning additional measures or investment to enable more hybrid or homeworking in the next 6–12 months. We have put a link to it in the transcript of this programme.

LINKS
- Link to CIPD’s report: ‘An update on flexible and hybrid working practices’