Understanding Temporary Workplaces and Their Tax Implications

Defining the Workplace in a Post-COVID Era

Identifying a permanent workplace is usually straightforward for most employees—it is where they regularly perform their duties. However, in the post-COVID work environment, many employees split their time between home and the office. With the increasing right to request flexible working arrangements, questions about tax implications on travel expense reimbursements have become more prevalent.

Key areas of concern include:

• Expenses related to temporary workplaces
• Claiming travel costs between two workplaces
• Understanding ‘ordinary commuting’ and its impact on tax deductions

What is a Temporary Workplace?

HMRC allows travel expenses to be tax-deductible if the employee works from a ‘temporary workplace’. According to HMRC, a temporary workplace is defined as a location where an employee attends to perform a task of limited duration or for a temporary purpose.

For instance, if an employee based in Birmingham is required to work in London for a year, the London location would be classified as a temporary workplace. Under these circumstances, all travel expenses associated with that location would qualify as tax-deductible.

The 24-Month Rule Explained

A critical limitation on claiming travel expenses is the ’24-month rule’. If an employee works at a location for more than 24 months or is expected to do so, that location becomes a permanent workplace. This means travel between home and that location is treated as ordinary commuting, which is not eligible for tax deductions.

HMRC defines ‘continuous work’ (under section 339(6) of ITEPA 2003) as a period during which an employee performs their duties to a significant extent at a given location. Spending 40% or more of working time at a site is considered ‘significant’.

If it is known from the outset that a contract at a new location will exceed 24 months, travel expenses cannot be claimed from the beginning. However, if the duration is uncertain and appears to be less than 24 months, tax relief is permissible until it becomes clear that the 24-month limit will be exceeded.

When Expectations Change

Changing expectations about the length of an assignment can complicate matters. For example, if an employee is initially expected to work at a location for 28 months, that location is immediately classified as permanent, and no travel expenses can be claimed.

However, if the assignment duration is later shortened to 18 months, travel expenses can be claimed for the remaining period but not for the initial months. This reflects HMRC’s view that the expectation at the outset determines whether the location is permanent or temporary.

Home Office Considerations

In some cases, a home office can be considered a permanent workplace, potentially allowing travel expenses to the company’s main office to be claimed. However, HMRC generally views working from home as a personal choice rather than a business requirement, meaning travel expenses from a home office are usually not tax-deductible.

Final Thoughts

Employers and employees must carefully assess whether a workplace is temporary or permanent to ensure compliance with HMRC rules. Understanding the 24-month rule and how changing expectations affect workplace classification is essential in determining eligibility for travel expense deductions.

Partner Note: s 337 & s 339 ITEPA 2003

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