Travel and subsistence under the spotlight

The government has announced an update to the Travel and Subsistence Review, a consultation on the taxation of benefits in kind that was originally launched in July. The consultation is the most recent of a series which follow on from the Office of Tax Simplification (OTS) reports on the taxation of benefits in kind.  You can access the consultation document by clicking here.

The rules on travel and subsistence payments were developed in an era where a workforce typically worked in one place, making occasional trips to other work locations, with mobile employees being more of a rarity. Over the last forty years employment patterns have changed, with ever larger numbers of employees working from home and working on long-term placements away from their primary employer’s premises.

The OTS’s findings were that:

  • the existing system does work for most employees in most cases;
  • there are difficulties in areas such as the “24 month rule”, which affects seconded employees, and employees attending multiple workplaces; and
  • employers tend to prefer a reform that marks a steady improvement of the existing system, rather than the upheaval inherent in a more radical change.

Despite the finding that employers tended to prefer incremental changes to “patch up” the existing system, the OTS concluded that it would still be desirable to consult as to whether complete change would be beneficial.

In the consultation document, the government states that it considers that the problems with the existing rules on travel and subsistence payments that were highlighted by the OTS “…are symptomatic of more fundamental issues in the tax rules on travel and subsistence expenses” and clearly indicates a preference for a complete renewal of the rules. The document also highlights concerns that companies are avoiding tax by using arrangements to sacrifice salary in exchange for travel and subsistence expense payments.

The consultation is proceeding in two phases, the first of which is already underway and is a call for evidence on travel and subsistence, focussing on the reasons that employers choose to make such payments. The consultation document promises that a progress report on this element of the consultation will be included in the Autumn Statement.

The second phase, which is expected to commence after the Autumn Statement, will be aimed at producing a set of principles on which to base the reform of the rules on travel and subsistence and the government promises that a report on this work will be included in the 2015 Budget.

We should not expect legislation until after the election in May 2015.

For further information regarding the travel and subsistence review, please call TaxDesk on 0845 4900 509 and ask for Martin Mann.