Background

It is important to understand two key points when considering the tax position of travel and subsistence costs of employees, namely:

• employers may pay for whatever costs they decide that they want to meet, and
• broadly, employees are taxable on all the income they receive from their employment, including any expenses payments relating to business travel.

The same general rules apply whether an employee pays for the travel personally and the costs are reimbursed, or where the cost of the travel is met by the employer directly on the employee’s behalf.

Having established that most payments are taxable, it is then important to consider whether any tax relief may be available to offset some, or all, of the tax bill. Tax relief is available in two ways:

• by exemption - certain payments or benefits in kind that an employee receives are exempt from tax: for example, up to £5 per night to cover the incidental costs of staying away from home overnight on business in the UK, such as newspapers or telephone calls, or
• by deduction - certain amounts can be deducted from an employee’s taxable income before arriving at the amount on which he or she will be taxed.

The term ‘relief’ is generally used to cover both forms of tax relief.

Work-related travel and subsistence

Employees are entitled to relief on the costs that they are obliged to incur when travelling in the performance of their duties, or travelling to or from a place they have to attend in the performance of their duties. However, no tax relief is available if the journey represents ordinary commuting or private travel.