An Overview of Business Travel For Employees
Let us give you an overview of what counts as ‘business travel’ for your employees. And what qualifies for tax relief when your employees are using public transport or vehicles which do not belong to them.
All income that your employee will receive from your business is taxable. This includes pay and any benefits (a company car) and any expenses payments (payments relating to business travel).
However, when an employer reimburses their employee for incurred travel expenses whilst the employee performs their duties, the payment should be made gross, and the employee should claim tax relief.
Tax relief is available in 2 ways, by exemption or by deduction.
By exemption means certain payments or benefits that an employee receives exempt from tax which means they are not taxable. If a payment or benefit is exempt, employers do not need to report the amount to HMRC and employees will not have to apply for tax relief.
By deduction – certain amounts can be deducted from an employee’s total income before arriving at the amount on which he or she will be taxed. If tax relief is available for the employee by deduction, the employer must report expenses payments or benefits of any kind to HMRC and employees need to apply to their HMRC office for further tax relief. Some deductions also provide tax relief where employees meet the cost of expenses themselves without being reimbursed for the cost.
The same general rules apply when an employee personally pays for their travel or if the cost of travel is met by their employer, or a third party because of their employment.
For example, the same general rules apply where:
• the costs are reimbursed
• the costs are met directly on the employee’s behalf
• vouchers (such as travel tickets) or credit tokens are provided to the employee
• travel facilities (such as accommodation) are provided direct to the employee
Employers must use a special system for working out and reporting any taxable part of all payments made to employees for the expenses of business travel in privately owned cars, vans, motorcycles and bicycles.
For National Insurance Contributions (NICs), the position depends on how the travel costs are met. If as an employer you make payments of, or towards business travel which are reasonable, those payments will be left out of the calculation of earnings when determining the earnings-related contributions owed.
So there would be no question of a NIC liability where an employer makes a travel payment which does no more than reimburse an employee for the full cost of business travel. However, if as an employer you pay pay more than the amount due for travel arrangements, there is a Class 1 NIC liability to be accounted for through the payroll in the relevant pay period.
Take a look at this example below to explain:
Ian purchases a train ticket for a business journey for £87. His employer reimburses him the full £87. No NIC liability arises. If instead of reimbursing Ian £87, his employer makes him a payment of £100, there is a profit element of £13 which should be added to his other earnings in that pay period for Class 1 NICs purposes.
If an employer arranges or provides travel for an employee and the benefit is exempt from tax it will also be exempt from Class 1A NIC. Where Class 1A NIC is due it must be accounted for in the same manner as any other Class 1A NIC which as an employer you will be due to pay.
For more information and advice on business travel for your employees contact K A Farr & Co Accountants in Southport.