If your employees travel between different sites, work on client premises, split their time between offices, or regularly work from temporary locations, it’s important to understand how HMRC treats travel expenses and benefits.
Many SME owners assume that any work-related travel can be reimbursed tax-free. As ever, the rules are more complex. The distinction between a temporary workplace and a permanent workplace can have a significant impact on whether travel expenses can be reimbursed, if tax relief and NI applies and whether a benefit in kind might apply.
Permanent vs Temporary Workplaces
HMRC’s rules are built around a core question:
Is the employee travelling to a permanent workplace or a temporary workplace?
This matters because:
- Travel to a permanent workplace is considered ordinary commuting and is usually taxable.
- Travel to a temporary workplace is generally considered business travel and can usually be reimbursed free of tax and NI.
What’s a Permanent Workplace?
A permanent workplace is somewhere an employee regularly goes to in order to work. Examples are the office, shop or branch where the employee normally works or a site where the employee is effectively based long term. Travel between home and a permanent workplace is ordinary commuting and isn’t tax deductible.
What’s a Temporary Workplace?
A temporary workplace is somewhere an employee attends for a limited or temporary period. Examples might include attending a client site for a short-term project or being at a branch for cover or a fixed project assignment.
Travel to a temporary workplace can normally be reimbursed tax-free.
Employees with Multiple Workplaces
Many companies now operate hybrid, flexible, and multi-site working arrangements. In these situations, each workplace must be assessed separately. The key issue is whether a location becomes a permanent workplace over time.
The 24-Month Rule
One of the most important things to be aware of where expenses are concerned is the 24-month rule. This prevents a workplace from qualifying as temporary if the employee attends it for too long. A workplace stops being temporary if the employee works there for more than 24 months, and they spend a significant amount of their working time there. If both of these conditions apply, the workplace becomes permanent.
Once that happens, travel from home to that workplace becomes ordinary commuting, reimbursed travel expenses may become taxable, NI may apply and subsistence costs linked to that journey may also become taxable. One important thing to note it that it’s based on expectation; it applies when it becomes expected that the assignment will exceed 24 months. This means tax can change before the employee reaches two years.
The 40% Test
The 24-month rule only applies if the employee spends a significant amount of time at that workplace. From the tax authority’s perspective, significant is defined as 40% or more of working time at a location.
Geographical Locations
It’s often assumed that changing buildings or client offices automatically creates a new workplace. HMRC doesn’t always agree. If an employee moves between workplaces but the journey is substantially the same, HMRC may treat them as one continuous workplace. This usually affects contractors, consultants, construction workers or site-based staff. So it’s important to consider the overall geographical area, whether the commute changes or whether the employee’s pattern of attendance remains broadly the same.
What Travel Can Be Reimbursed Tax-Free?
If a workplace genuinely qualifies as temporary, employers can usually claim mileage, train fares, parking, public transport costs and subsistence. Incorrect treatment of travel expenses is a common issue during HMRC compliance checks. If you have multiple mobile employees, these issues can quickly become expensive.
Hybrid Working and Homeworking
Hybrid working has added further grey areas. Many directors assume that because an employee works from home for part of the week, journeys to the office automatically qualify as business travel. In most cases, this isn’t the case. If the office remains the employee’s permanent workplace, travel from home to the office is ordinary commuting, so reimbursement may be taxable. So it’s important to make any arrangements with team members working from home very clear.
Practical Steps for SME Employers
If your business has employees travelling regularly between workplaces, it’s important to track how long employees attend client sites or secondary workplaces. Keep good records and review attendance to check whether employees spend 40% or more of their working time at particular locations. Update any policies regularly, especially because expense policies written before hybrid working may now be outdated. And seek advice if you’re unsure – travel and subsistence rules remain one of the most misunderstood areas of tax.
If you’d like help reviewing your travel expenses or HMRC compliance, our team can help. We work with SMEs across a wide range of sectors to ensure employee expenses are handled correctly, efficiently and tax-effectively.