Travel and subsistence review

In response to the Office of Tax Simplification’s (OTS) January 2014 report on the tax treatment of employee benefits and expenses Review of employee benefits and expenses: second report, the government announced in Budget 2014 that it intended to review the rules underlying the taxation of travel and subsistence expenses. On 31 July 2014 the government launched the first stage of that review. It sits alongside the consultations on expenses and benefits and the broader call for evidence on remuneration launched on 18 June, both of which are intended to complement this work.

In their report, the OTS made a range of recommendations for how the tax treatment of travel and subsistence expenses could be simplified or improved. The OTS’s extensive research highlighted elements of the current regime which are a cause of error, misunderstanding and concern for employers. In addition to the range of recommendations for changes to the current rules, the OTS proposed that the whole system of travel expenses be reviewed against changing working patterns.

The government believes that these problems are symptomatic of more fundamental issues in the tax rules on travel and subsistence expenses. The travel and subsistence rules have failed to keep pace with changes in working practices. Since the rules were last updated there have been significant changes in the way the workforce operates, including the growth in the temporary labour market and an increase in the number of employees who work at home, neither of which is properly catered for in the current system. Concerns have also been raised with the government that some of the rules drive tax planning and abusive behaviour and are distorting the labour market and working practices. Given the rate of change in working practices the government intends to start from first principles and produce a new set of rules that will work with modern day practices.

The government intends for any new set of rules to be simpler for both employees and employers to understand and use; to reflect rather than drive commercial decisions; and also that it will be responsive to 21st century working patterns. The government does not intend that any new system would provide tax relief for private travel or ordinary commuting but, within those constraints, intends to engage in an open and transparent process of consultation to ultimately produce a new set of rules. Given the scope of the review and the complexity of devising a new set of rules, the government expects that this will be a longer term piece of work, and therefore has no plan to legislate for these new rules in the remainder of the current parliament.

The government intends to conduct the consultation in stages, the first two of which are outlined below:

1. Stage 1 – July 2014 to October 2014

In the first stage of the consultation the government intends to improve its understanding of the commercial realities of travel and subsistence payments. Amongst other issues, the government intends to explore the circumstances in which employers pay travel and subsistence expenses (whether tax relievable or not); how tax influences these decisions; and the other factors which influence commercial decision making in this area.

In this stage the government also intends to discuss the framework within which it will develop any new principles to underlying rules on travel and subsistence expenses. At this stage of the review the government is not considering the detail of possible rules themselves but instead this framework would provide parameters within which a new system of travel and subsistence rules could be designed. In particular the government wants to discuss what sort of payments should qualify for tax relief, who they should need to be paid by, to whom and in what manner – and whether tax relief for subsistence payments need be tied to the rules for travel.

Please note that the government is now considering the findings from the first stage of this review. Further opportunities to contribute to the review will be announced in due course.

1. Stage 2 – winter 2014 to spring 2015

In the second stage of the review the government intends to establish a working group to assist in producing a new set of principles for the travel and subsistence tax regime. These principles will be based upon the government’s findings from the first stage of the review.

Stage 1 work continues, therefore the government will not be reporting on stage 2 of the review at Budget 2015. However, should the government decide to proceed with reforming the rules, any proposals will undergo a full consultation so that any interested parties can contribute their views for consideration. Please note that details of this consultation process will be published in due course. .

Consultation description:

In response to the Office of Tax Simplification’s (OTS) January 2014 report on the tax treatment of employee benefits and expenses, ‘Review of employee benefits and expenses: second report’, the government announced at Budget 2014 that it intended to review the rules underlying the taxation of travel and subsistence expenses. On 31 July 2014 the government is launched the first stage of that review. It sits alongside the consultations on expenses and benefits and the broader call for evidence on remuneration launched on 18 June, both of which are intended to complement this work.

On 23 September 2015 the government published a discussion paper that sets out the case for change to the current rules for tax relief on travel and subsistence rules. This discussion paper has been developed following an initial round of discussions with stakeholders who got in touch with the review team shortly after the review was launched in July 2014. The paper outlines a potential framework to tackle some of the issues that were identified during these discussions. The government would now like seek views on this framework and has set out a number of key questions to test with interested stakeholders.

We will accept written submissions during the course of the consultation period.

Responses to this discussion paper will be used to inform the development of the government’s proposals which will be published for wider consultation in due course.

Ways to respond:

Email to: TravelandSubsistenceReview@HMTreasury.gsi.gov.uk