The future for public sector mileage claims
01 July 2020
Duncan Groves, director and head of employment taxes for PSTAX, discusses a significant development
It was back in 1998 when the old ‘triangular travel’ rules were scrapped and the then Inland Revenue introduced the current employee travel tax legislation and the ‘well-thumbed’ Booklet 490 with its A to Z of examples.
Despite the government launching, and subsequently abandoning, a consultation document on travel in 2016, the 1998 legislation has ‘bedded in’ well and now seems almost a familiar part of an employer policy and claims process. With a few exceptions, the rules are relatively easy for employees to understand. They are also ‘generous’ compared to previous legislation, in that travel claims can generally be made free of income tax and National Insurance contributions (NICs) to any ‘temporary workplace’ and the employee has no requirement to deduct their usual home to work travel from their claim.
Most private sector employers embraced the relative simplicity of the 1998 rules and sought to mirror them within their own internal travel claims policies. In so doing, those employers have opened themselves up to increased travel costs but, simultaneously, saved time and administration in checking claims and in identifying and processing taxable (private) travel.
Perhaps understandably, the public sector took a different view of matters. Anxious to minimise the additional cost burden, public sector employers embraced the 1998 travel rules but with an important tweak. Employees could claim for their journeys to a temporary workplace but had to reduce those claims by the number of miles they would travel on their usual commute, from home to work, or vice versa. Almost every public sector body has applied this tweak and, by and large, employees accept and apply it, seemingly without complaint. Well, until now...
A memorandum issued by the National Police Chief’s Council in May this year has arisen from an officer’s legal challenge to the interpretation of the Police Regulations. These regulations permit officers to claim business travel and contain no reference to any deduction of ‘home to work’ mileage. It appears that the case has been taken forward by the staff associations resulting in a change of policy relating to police mileage claims. Consequently, with effect from 1 June 2020, forces must pay the cost of mileage to temporary workplaces, generally without deduction of the commuting mileage.
With Forces already looking to apply the same change of policy to support staff in addition to officers, this could be the moment when the whole sector approach to mileage claims is considered. Other public sector staff associations are sure to follow the line taken by police colleagues and pressure could start to build for similar changes to be made across local government, the National Health Service and the civil service, amongst other bodies.
Clearly, the cost implications become highly significant when viewed across the whole sector. But there are other implications, relating to interpretation of HM Revenue & Customs’ (HMRC’s) guidance and compliance.
While the 1998 travel rules are simple, certainly by comparison with what came before, there are certain areas of complexity which need to be fully understood by employers before they try to summarise the guidance in Booklet 490 within their travel policy. Key to tax and NICs compliance is understanding that tax relief can never be given for a commuting journey, namely one between home and the normal workplace.
Within Chapter 4 of Booklet 490 – headed ‘Safeguards against abuse’ – is paragraph 4.10 which references when an employee’s journey to a temporary workplace is not “significantly different from their ordinary commuting journey”. An example (‘Keith’) follows showing that a journey from Leicester to a temporary workplace which is only 500 yards from the normal workplace in Nottingham is substantially the same as the ordinary commuting journey and thus no tax relief may be given.
The following paragraph explains that “this is intended to be a commonsense rule which applies where the journey to or from a temporary workplace is broadly the same as the employee’s ordinary commuting journey.” It then refers to a ‘ten-mile rule’ which must be the most misunderstood aspect of the 1998 travel rules. Essentially, when suspecting that an employee has tried to convert a private journey, i.e. commuting, into a business journey, namely, travel to a temporary workplace followed by travel to the normal workplace, this rule may have application. However, HMRC states that it will not seek to challenge any scenario where the journey to a temporary workplace is ten (or more) miles longer than the ordinary commuting journey.
It appears that employers are prone to the misinterpretation that, unless a journey to a temporary workplace is at least ten miles longer than the ordinary commute, then no claim should be permitted. This would clearly be an inaccurate reading of the rules relating to ‘broadly equivalent’ journeys. Where HMRC stipulates a ‘safeguard against abuse’ rule, it means that it reserves the right to investigate further and recover any falsely claimed tax relief. However, where an employee is clearly acting in good faith in making a claim based on a clear and accurate travel policy, then a ten-mile rule becomes irrelevant. In determining whether any journey could be broadly equivalent to the ordinary commute, the claimant must take account of where they start the journey, how many miles they need to travel to get to the temporary workplace and whether the temporary workplace is situated in the vicinity of the normal workplace. The example of Keith, as described above, is self-explanatory.
Had Keith been travelling from home in Leicester to Long Eaton, a temporary workplace, his employer would be quite correct in paying his claim for mileage tax/NICs free, irrespective of the fact that Long Eaton is around seven miles from Nottingham (and the journey is shorter than his normal commute). The only exception to this position would be if the journey was made with the intention of abusing the travel rules; in other words, the journey to Long Eaton was not necessary and the claimant had merely been seeking tax relief on an ordinary commuting journey.
Returning to the changes to mileage policy as set out by the Police Consultative Forum’s Memorandum of Understanding and accompanying Appendix B, unfortunately it appears that the ‘broadly equivalent’ rules may have been misunderstood. As a result, Forces must now introduce a revised travel policy, for a 1 June 2020 implementation, based on an overly onerous interpretation or else ignore the examples in Appendix B and set about the policy revisions based on a more commonsense approach.
This second option would seem to be preferable, especially in a sector where clearly defined and straightforward rules are part of everyday working life and ‘abuse’ of them shouldn’t be a feature. A concise and clear policy based on an accurate interpretation of the tax travel rules equals timely and accurate claims by staff, and an easier life in human resources and payroll.