Is shifting your work base good for tax?
It was always going to happen. Pandemic or no pandemic (or should we be saying, panic or no panic?) the tendency for people to work at home rather than struggling into the office every morning was always going to increase. But recent events have obviously given a massive stimulus to this process, and the technology that had already been developed to enable remote working (like remote computer servers, and teleconference software) has recently become much more prominent in everyone’s thinking – everyone, that is, who is able to work basically from anywhere.
And it does bring to mind the question as to whether all of those huge new office blocks going up in the City of London, and many other places, are based on a very short-sighted view. It’s true that there are great many jobs, or parts of jobs, which are much more easily done in a central location, with actual face to face contact between human beings: but on the other hand, its also got to be true to say that there are a huge number of jobs, or part jobs, which can really much more conveniently be dealt with from home. A dedicated office, perhaps in a location some way away from where the workers live, will increasingly be seen as a very expensive luxury: expensive in terms of time as well as money. So increasingly it seems likely that almost any office based business is going to be arranged differently under the “new normal” (to use a horrible cliché) with effectively a series of satellite offices, in many cases, being the individual workers’ homes, with a central office set up to provide cohesion and a place to meet.
Business Travel
And the point of writing all this here is that the way the tax system deals with travelling expenses could well be significantly impacted on by such a change. Let’s deal with individuals who are self employed, first, by way of a hypothetical scenario:
John Normal is the “administration partner” in a reasonably large firm of solicitors, whose main office, for the purpose of meeting clients, is in the middle of the city. John is a partner in the firm, but very rarely, in the nature of his job, needs to be in the office. With modern technology, all of the relevant post is scanned over to him by a secretary, and he has direct contact with the main computer server for the firm, by way of a “remote desktop” arrangement connected with his computer at home. In fact the shift from the central office to his “home office” is so radical that he doesn’t actually have a desk available to him in the central office. He comes into the central office at most once a month, for partners’ meetings, and even these are sometimes dealt with by way of Zoom.
So when does come into the office, for partners’ meetings or for any other purpose, can he claim his travelling expenses against tax?
Our answer to that would be “very arguably, yes”. With a person who is categorised as self employed for tax purposes, the main issue is where the base of the person’s self employment is. In John Normal’s case, it is quite clearly his home, and indeed we have perhaps been guilty rather of exaggerating the situation to make the point, here. In many other cases, following the recent sea change in the way people work, a lot of people who go to the main office more often are still going to have their home as their main base of work. In principle, then, travelling from the main place of work to another place is an allowable expense against tax.
There is a fair amount of case law on this subject, because it’s been an issue for a long time. We have to say that mostly the taxpayer has lost these cases (for example one about a doctor who gave initial telephone advice from home before travelling into the hospital), but then these cases were all based on old fashioned ways of working.
An Employee’s Travel Expenses
The above scenario related to an individual who is self employed for tax purposes. The rules are actually quite different for those who are categorised as employees (including directors of their own companies).
Here the question is not what the main base of your work is, but whether the travel is question is travel to a “temporary workplace” or “permanent workplace”. Let’s have a look at how this changes things in our scenario:
The facts as the same as in the example of John Normal above, except that John isn’t a partner in the firm, but is correctly categorised as an employee, on the firm’s payroll. So can he claim travelling expenses when he goes into the city now?
The only question we need to ask is whether the city office is a “permanent workplace” for him. It doesn’t need to be his main workplace, but merely a permanent one. So if John’s expenses are now to be claimed against tax, he needs to show that the city office is only “temporary workplace” for him.
To quote HMRC themselves, “a workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.”
In John’s case, there is nothing particularly temporary, and we’ll assume that his job is not of limited juration either, in the sense of having a fixed term applied to it. So it’s very unlikely that John will be able to claim his travelling expenses in this scenario, even given the new facts of the situation.
Look Carefully at your Status
In the second example above, the one where John doesn’t get relief for travel expenses because he’s an employee, we rather glossed over the essential point. This is whether the individual is correctly categorised as being an employee on the one hand, or self employed on the other. This is by no means a straightforward question, as anyone who’s ever looked into this matter will know. A person as senior as John Normal, who works entirely on his own initiative, and has the effective status as a partner even if, as in the second scenario, he isn’t formerly categorised as a partner, is likely actually to be within the scope of treatment as self employed. Of course, you can make it very difficult for yourself or your “self employed” service providers by putting them on the payroll and getting them to sign an employment contract. But you don’t necessarily have to do these things. It’s by no means implausible that our John, in the second example, could decide to set up a business on his own account called “John Normal Administrative Services”, or some such name. This new business could then invoice the firm he is working for for his services and, providing his true position that he is an independent and freelance service provider, his tax treatment will revert to the one applying in example one.
Not only will all of his travel expenses to the office, and indeed to anywhere else from home, be allowable business expenses, but he will also be in a position, perhaps, to bring his wife or partner in as a partner in his new “business”. It never hurts to think laterally; or to question the herd mentality of “received wisdom” in these things.Of course, it is not likely to be worthwhile to shake up the whole set up of your financial relationship with the person you work for for a £1.50 bus fare, but if the travelling involved is more extensive (even including air travel, for example), and there are other potential benefits of being set up in business on your own account, you should certainly be looking at this.
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