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HMRC internal manual

Employment Status Manual

Application of the tax rules: travel expenses

Paragraphs 7 and 11(1) Schedule 12 Finance Act 2000/Section 54 ITEPA 2003

Regulation 7(1) and (3) SI 2000 No. 727


Step Three in the deemed payment calculation allows a deduction for any expenses met by the intermediary which could have been claimed as expenses against income tax if the worker had been an employee of the client and had paid for them himself. This may include any travel expenses incurred in respect of relevant engagements.

The legislation treats all engagements as being part of a single employment with the intermediary. Therefore, the rules in respect of travel expenses should be applied on that basis when working out whether the workplace is temporary or permanent, see EIM32000 onwards.

During the Finance Bill debate on IR35 on 6 June 2000, the Paymaster General said:

‘A worker who has a series of short employments with clients in different parts of the country will not normally be able to claim tax relief for the cost of travelling from home to work. Each engagement is a separate employment, and travel between home and work is not normally deductible under the rules for employees. However, a worker who is continuously employed by his service company, and undertakes contracts for clients of the service company in different places, can claim the costs of travelling to and from those clients’ premises. That is because a client’s premises can be treated as a temporary place of work, provided that the worker does not expect to work there for more than 40 per cent of the time in a period exceeding 24 months. The legislation will allow this more generous treatment to continue…’

Workers cannot obtain relief for their travel and subsistence where the period at the workplace comprises “all or almost all of the period for which the employee is likely to hold the employment.” There have been concerns that this rule will be used to prevent the personal service company worker obtaining tax relief. However the “employment” of the worker is with his or her personal service company, not with the client; the new rules do not change this. They simply deem the income from relevant engagements to be taxable under Schedule E/as employment income; they do not deem the worker to be an employee of the client.

Thus the “period for which the worker is likely to hold the employment” refers to employment with the service company, not the engagement with the client. The treatment of travel and subsistence for workers will be no different under the new rules than it was before the IR35 rules were introduced.