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Readers' forum - Travel expenses

27 October 2005
Issue: 4031 / Categories:

Our client is a contractor, working through his personal service company, whose workplace changes quite frequently. His home is in the north of England, but due to the nature of his profession, the majority of his work is in the West Midlands and he incurs substantial expense costs travelling to and from his workplace. Since 1999, he has undertaken a number of (unconnected) contracts at locations all within the West Midlands area.

Our client is a contractor, working through his personal service company, whose workplace changes quite frequently. His home is in the north of England, but due to the nature of his profession, the majority of his work is in the West Midlands and he incurs substantial expense costs travelling to and from his workplace. Since 1999, he has undertaken a number of (unconnected) contracts at locations all within the West Midlands area.
The difficulty that has arisen is that HMRC take the view that the change of workplace has had no substantial effect on his journey to work and that this should therefore be ignored, with the consequent effect that all the workplaces are to be treated as a single workplace. HMRC have cited TA 1988, Sch 12A para 5(3) in support.
We have drawn HMRC's attention to the Schedule E Manual, SE32286, which we believe substantially reflects our client's circumstances and pointed out that, in our client's case, the distances between the different workplaces are as much as 32 miles. Also, in the first example at 3.14 in the Employee Travel booklet 490, the distance between workplaces is only about twelve miles. We have argued that the similarities in our client's journeys are an accidental consequence of where he lives, but HMRC contend that the differences in his journeys are not substantial and they refer us instead to the example at paragraph SE32282.
A review by the compliance manager has met with no success. HMRC also propose to use discovery provisions to open up earlier years.
Readers' comments would be appreciated.
Query T16,700                                          — Wanderer.

Reply by Thicket:

Although we are not told, we can assume that each assignment does not fall to be treated as a permanent workplace by reason of the expected duration exceeding twenty-four months. There are a number of circumstances where HMRC seek to deny relief for travel even though the workplace would seem to meet the conditions of being a temporary workplace.
Where, as here, a contractor obtains work through his personal service company, he is an employee of his own company. It will usually be the case that the company is based at the contractor's home as it is not usually worthwhile incurring the expense of maintaining a separate office. The circumstances will be similar to those described in  booklet 490, at 3.20, 'Agency Workers'. This states that where a worker generally attends only one workplace in respect of each engagement, that workplace will usually be a permanent workplace. However, the example of 'Ferdinand' in that paragraph is worth noting and may provide comfort to Wanderer. Ferdinand is a computer expert who provides his services through a company which he owns. He is the company's only employee. Each year the company has approximately 15 contracts with different clients around the country to supply Ferdinand's services. He regularly travels from home to work at the premises of the company's clients. Provided that he does not expect to spend more than 40% of his working time for more than 24 months at any one site, he is entitled to relief for all his journeys from home to clients' premises.
This is still subject to the anti-avoidance rules concerning changes to a workplace the effect of which is that a change in the location or boundaries of a workplace will give rise to a new workplace where the change has a significant effect on the journey to work and, in particular, the cost of that journey.
In the present case, where home is in the north of the country, and the work takes place at a number of clients in the West Midlands, it would seem likely that the cost of the journey from home to work does not vary significantly for each work location and the client will not be eligible for relief for the cost of travel from the north.
Unfortunately, the Schedule E Manual at SE 32286 does not provide any comfort. This describes the case where an employee's workplace was 25 miles south of where she lives and changed to become 25 miles north. Although the cost of travel has not materially changed, the new location is sufficiently different geographically for the particular employee to be a new workplace. However, this would not necessarily be the case for another worker travelling from outside the region, as is the case here.
In practice, this type of situation is reasonably commonplace where a worker operates through a personal service company. It is worth educating the client of the difficulty in claiming income tax relief for travel expenses where a base is maintained in these circumstances.
The only hope that can be offered is to prepare a detailed analysis of travel over the period under enquiry, and to try to find cases where the anti-avoidance rule would not apply.                                                        

Reply by Hodgy:

Where an employee makes a journey from home to a permanent workplace, this is deemed to be ordinary commuting by virtue of ITEPA 2003, s 338(3) and so the cost of that journey is not tax deductible. However, a journey from home to a temporary workplace is deductible.
In this instance, the client of Wanderer is working for his personal service company and that company has sent him to work on various unconnected contracts since 1999. The client lives in the north east of England and all of the contracts have been situated at different locations in the West Midlands.
The problem for Wanderer is contained in ITEPA 2003, s 339(7), which states that a 'modification of the place at which duties are performed is to be disregarded ... if it does not have any substantial effect on the employee's journey, or expenses of travelling to and from the place where they are performed'.
In this case, a large portion of the journey for the client will not have been affected by the change in location of the contracts, as the client will still go on to the A1 followed by the M1, possibly still leaving the M1 at the same junction in all cases. I am assuming that it is this aspect which is causing HMRC to take the stance that they have. HMRC are presumably arguing that as much of the journey is common to all journeys, irrespective of the actual workplace, any change created by the moves is not substantial. However, there is no definition of substantial, such as the change in the cost or journey time has to be above a certain percentage.
Wanderer referred to the Schedule E Manual at reference SE32286 and certainly in that example, it states that there would have been no difference in the cost of the journey to the new workplace as compared to the old workplace or even the length of the journey. However, the two places are in opposite directions and so that person would have been travelling on totally different roads, but this does indicate that a subjective measure of difference can be important.
At reference SE32281 it gives an example where the restriction would apply being a case where a person works on a building site and moves to a new site on adjacent land. This section of the Schedule E Manual is headed 'safeguard against abuse' and with that particular example you could understand how it might be considered to be an abuse of the temporary workplace rules.
We are not given any information as to the proximity of the various workplaces, but provided they would not be similar to the above example, this would not seem to be a situation where the client is seeking to abuse the system. He is simply looking for work as best he can to try and support his family and he has to keep moving from job to job to keep the money coming in.
I would direct Wanderer to the Schedule E Manual at reference SE32283 which sets out an example where there is a change in workplace and the safeguards in s 339(7) do not apply. The taxpayer is working on a contract for the construction of a bridge and has to switch from the north shore to the south shore. It is stated that because of the detour needed to get the south shore, this has a substantial effect, but nowhere does it state that this decision will be dependent on the starting point for the journey.
By that I mean that the example does not say that if the employee lived more than, say, 100 miles away, then the upheaval of having to travel to the south shore would not be sufficiently substantial and so the change in workplace would be disregarded.
Following on from that point, if I was Wanderer I would be asking why the change of workplace should be disregarded for his client who lives in the north east, while another contractor working on the same jobs would be treated as having separate workplaces just because that person lives in the West Midlands.                

Editorial note.

On the basis that the employee can argue that each workplace is not a 'base' under ITEPA 2003, s 339(4), then he would seem to fall within s 339(5) as having temporary workplaces. Section 339(7) would then appear to allow relief on the basis that the change has a 'substantial effect' on the journey, which the Employment Income Manual (EIM32300) indicates as 'ten miles or more each way'.

Issue: 4031 / Categories:
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