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HMRC internal manual

National Minimum Wage Manual

Pay reference periods & elements of pay: tax free payments for travel from home to a temporary workplace

Relevant legislation

The legislation that applies to this page is as follows:

* National Minimum Wage Regulations 2015, regulation 10(n)

Some employers make payments to workers for travel from home to a temporary workplace which attract tax relief under section 338 of the Income Tax (Earnings and Pensions) Act 2003 (sometimes known as ITEPA) and can be disregarded for National Insurance (NICs) purposes.

These payments are often labelled or called “travel expenses” for tax/NICs purposes and may also cover associated subsistence and accommodation costs. However, they are not payments made on account of a worker’s expenditure in connection with their employment and so are not expenses (NMWM09070) for national minimum wage purposes.

For pay reference periods starting on or after 1 January 2011, these tax/NICs free payments reduce national minimum wage pay. The effect of this is that the payment initially counts as a payment for national minimum wage purposes (NMWM09060) but is then reduced from the calculation of NMW pay (NMWM09070). So overall these payments do not count towards national minimum wage pay.

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Common circumstances in which these tax/NICs free payments are made

Some employers employ temporary workers at a series of different workplaces. These employers are often umbrella companies (NMWM06080) or employment businesses (sometimes called agencies or labour providers).

These workers can be engaged under a separate contract for each temporary employment. If so, each separate workplace is regarded as their permanent workplace. However, some employers link together a series of temporary employments into one ongoing employment under an “overarching contract”. This changes a series of permanent workplaces into a series of temporary workplaces. This allows workers to participate in schemes organised by their employer which take advantage of tax relief and NICs disregards available on payments for home to work travel to a temporary workplace. The schemes are sometimes called “travel”, “travel and subsistence”, “dispensation” “salary sacrifice” or “temporary workplace” schemes.

These schemes are organised in different ways but typically workers agree to give up an amount of pay that is normally subject to tax/NICs and have it replaced with payments for travel (and sometimes related subsistence and accommodation) which do not attract tax/NICs. The worker’s pay is sometimes (but not always) given up under a salary sacrifice arrangement (NMWM09300). In these cases, the worker agrees to sacrifice part of their contractual entitlement to salary in return for these tax/NICs free payments.

For tax/NICs purposes, employers must normally report expenses paid to workers at the end of the tax year. However, if employers make these tax/NICs free payments to workers they can apply to HMRC for a dispensation which removes the requirement to make a return to declare these payments. Many employers running these schemes hold a dispensation to cover payments made to temporary workers for daily travel, subsistence and accommodation costs.

For example:

A worker is paid £1,000 per month

He enters a salary sacrifice arrangement and is no longer contractually entitled to £400 of his salary.

He receives an “expenses” payment of £450 which is paid tax and NIC free under s338 ITEPA 2003.

The payment is to cover home to office fares and associated subsistence costs.

Effect on national minimum wage pay:

The “sacrifice” reduces national minimum wage pay by the amount sacrificed (£400) (NMWM09300)

The payment made for home to office fares is initially included in the calculation of remuneration for national minimum wage purposes (NMWM09050) but since they are allowed as a tax deduction under section 338 ITEPA 2003 then they also reduce national minimum wage pay

National minimum wage pay is £600 (£1000 minus £400 plus £450 minus £450).

For administration charges or fees associated with these schemes see (NMWM11050).

For salary sacrifice arrangements see (NMWM09300).

For other deductions and payments being taken from workers in respect of these schemes see (NMWM11110).