Contractors' Questions: Do my decisions on travel affect tax relief?

Contractor's Question: Do the personal choices I make about travel to and from work, which is another part of the UK, impact the tax relief due? Mainly I'd like to know if the amount I can recoup will be affected if I decide not to return home at the weekend. For example, assume I drive 200 miles away to the job, work 6 days one week and 5 days the next and return home every other weekend. Are HMRC going to deny my claim because I could have driven home every weekend but chose not to do so when I had the two days off? If driving proves too tiring, I may just take the train instead, first-class of course!

Expert's Answer: Expenses other than travelling must be wholly, exclusively and necessarily in the performance of the duties of the employment and this will have an effect on essential expenditure which arises from personal choice. For example, if an employer provides writing materials such as ball point pens, though the employee prefers to use a fountain pen, the expense will be denied. Some may say this is because of personal choice. Others may say that the expense is not necessarily incurred as an alternative is available.

Personal choice is more of an issue when it comes to travelling because of the different modes available. There is also the interaction between travelling and Mileage Allowance Relief (with rates of 40p per mile for the first 10,000 business miles and 25p per mile thereafter).

Firstly, if the journey is necessary and qualifies for relief then the mode of transport is down to the individual. HM Revenue & Customs cannot dictate how a person makes a journey. If it could, then the situation would become unworkable. For example, it might then be able to deny rail travel if the bus was cheaper or deny a taxi fare as the tube was available. It is not a requirement that the claim is limited to the cheapest option - the requirement is that the journey qualifies. So it follows that, under the current system, tax relief on first class travel cannot be denied on the grounds that second class was available.

I have come across one ludicrous case where HMRC sought to deny the whole of a travel claim on the grounds of personal choice. Their argument was that the person concerned had been in deskbound employment, only to then be promoted into a travelling position. HMRC attempted to deny the claim because it was the individual's "personal choice" to accept the promotion.

There is a further, lesser known, fact when it comes to Mileage Allowance Relief. MAR is available in respect of qualifying journeys. The requirements are that the journey qualifies, that the travel is by car and that any reimbursement is taken into account. MAR is not denied because alternative transport was available. For example, if a works bus is available but the individual chooses to use their own car then a claim to MAR is appropriate as the journey qualifies and a car is used.

Similarly if a person fails to claim reimbursement from their employer, e.g. an umbrella company, that person is not prevented from claiming from HMRC. It used to be the HMRC approach that if it is possible to claim from your employer there is no claim to be made to HMRC because it is not a necessary expense. The argument back then was that the claim for tax relief has occurred because of the failure to claim from the employer and not as a result of the travel expense.

This does not, however, apply where the claim is in respect of MAR ( but be aware that HMRC will argue that it will hold good in respect of other expenses), as MAR is due in respect of qualifying journeys where the journey is made by car less any reimbursement from the employer. If no reimbursement is made because no claim was made to the employer, then there is no reimbursement to take into account. Account is not taken of any reimbursement that could have been claimed. And, finally, no matter what HMRC say there is no legal requirement that the journey is made in the claimant's own car.

The expert was Bob, the retired tax inspector. 

Useful links:

Directory of umbrella companies

Click here for our umbrella company guide.

Printer Friendly, PDF & Email

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required