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Tax issues arise when employers pay employee business travel expenses

Employers must determine proper tax treatment for employees.

Most employers pay or reimburse their employees’ expenses when traveling for business. Generally, expenses for transportation, meals, lodging and incidental expenses can be paid or reimbursed by the employer tax-free if the employee is on a short-term trip. However, the tax rules become more complex when the travel is of a longer duration. Sometimes the travel expenses paid or reimbursed by the employer must be treated as taxable compensation to the employee subject to Form W-2 reporting and payroll taxes.

The purpose of this article is to address some of the more common travel arrangements which can result in taxable income to employees for federal tax purposes. Although business travel can also raise state tax issues, those issues are beyond the scope of this article. This article is intended to be only a general overview as the tax consequences to an employee for a given travel arrangement depend on the facts and circumstances of that arrangement.

In the discussion below, it is assumed that all travel expenses are ordinary and necessary and incurred by an employee (or a partner in a partnership) while traveling away from home overnight for the employer’s business. In addition, it is assumed that the expenses are properly substantiated so that the employer knows (1) who incurred the expense; (2) where, when, why and for whom the expense was incurred, and (3) the dollar amount. Employers need to collect this information within a reasonable period of time after an expense is incurred, typically within 60 days.

Certain meal and lodging expenses can fall within a simplified substantiation process called the “per diem” rules (although even these expenses must still meet some of the substantiation requirements). The per diem rules are outside the scope of this article.

One of the key building blocks for the treatment of employee travel expenses is the location of the employee’s “tax home.” Under IRS and court holdings, an employee’s tax home is the employee’s regular place of work, not the employee’s personal residence or family home. Usually the tax home includes the entire city or area in which the regular workplace is located. Generally, only expenses paid or reimbursed by an employer for an employee’s travel away from an employee’s tax home are eligible for favorable tax treatment as business travel expenses.

Travel to a regular workplace

Usually expenses incurred for travel between the employee’s residence and the employee’s regular workplace (tax home) are personal commuting expenses, not business travel. If these expenses are paid or reimbursed by the employer, they are taxable compensation to the employee. This is the case even when an employee is traveling a long distance between the employee’s residence and workplace, such as when an employee takes a new job in a different city. According to the IRS, if it is the employee’s choice to live away from his or her regular workplace (tax home), then the travel expenses between the two locations which are paid or reimbursed by the employer are taxable income to the employee.

Example: Bob’s personal residence is in Chicago, but his regular workplace is in Atlanta. Bob’s employer reimburses him for an apartment in Atlanta plus his transportation expenses between the two cities. Since Atlanta is Bob’s tax home, these travel expenses are personal commuting expenses and the employer’s reimbursement of the expenses is taxable compensation to Bob.

Travel to two regular workplaces

Sometimes an employer requires an employee to consistently work in two business locations because of the needs of the employer’s business. Factors such as where the employee spends the most time, has the most business activity, and earns the highest income determine which is the primary location with the other being the secondary location. The employee’s residence may be in either the primary or the secondary location. In general, the IRS holds that transportation costs between the two locations can be paid or reimbursed by the employer tax-free. In addition, lodging and meals at the location which is away from the employee’s residence can generally be paid or reimbursed tax-free.

Example: Caroline lives in Location A and works at her company headquarters there. Her employer opens a new store in Location B and asks her to handle the day-to-day operations for two years while the store is getting up to speed. But Caroline is also needed at the headquarters so her employer asks her to spend two days a week at the headquarters in Location A and three days a week at the store in Location B. Because the work at each location is driven by a business need of Caroline’s employer, she is treated as having primary and secondary work locations and is not treated as commuting between the two locations. Caroline’s travel between the two locations and her meals and lodging at Location B can be reimbursed tax-free by her employer.

As a practical matter, the employer must carefully consider and be able to support the business need for the employee to routinely go back and forth between two business locations. In cases involving two business locations, the courts have looked at time spent, business conducted and income generated in each location. Merely having an employee “sign in” or “touch down” at a business location near his or her residence is unlikely to satisfy the requirements for having two regular workplaces. Instead, the IRS would likely consider the employee as having only one regular workplace with employer-paid travel between the employee’s residence and the regular workplace being taxable commuting expenses.

Travel when a residence is a regular workplace

In some cases an employer hires an employee to work generally, or only, from the employee’s home, as he or she is not physically needed at an employer location. If the employer requires the employee to work just from his or her residence on a regular basis, does not require or expect the employee to travel to another office on a regular basis, and does not provide office space for the employee elsewhere, then the residence can be the tax home since it is the regular workplace for the employee. When the employee does need to travel away from his or her residence (tax home), the temporary travel expenses can be paid or reimbursed by the employer on a tax-free basis.

Example: Jason is a computer programmer and works out of his home in Indianapolis for an employer in Seattle. He periodically travels to Seattle for meetings with his team. Since Jason has no assigned office space in Seattle and is expected by his employer to work from his home, Jason’s travel expenses to Seattle can be reimbursed by his employer on a tax-free basis.

Travel to a temporary workplace

Sometimes an employer temporarily assigns an employee to work in a location that is far from the employee’s regular workplace, with the expectation that the employee will return to his or her regular workplace at the end of the assignment. In this event, the key question is whether the employee’s tax home moves to the temporary workplace. If the tax home moves to the temporary workplace, the travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee because they are personal commuting expenses rather than business travel expenses. Whether or not the employee’s tax home moves to the temporary workplace depends on the duration of the assignment and the expecations of the parties.

One year or less . If the assignment is expected to last (and actually does last) one year or less, the employee’s tax home generally does not move to the temporary workplace. Therefore, travel expenses between the employee’s residence and temporary workplace that are paid or reimbursed by the employer are typically tax-free to the employee as business travel.

Example: Janet lives and works in Denver but is assigned by her employer to work in San Francisco for 10 months. She returns to Denver after the 10-month assignment. Janet’s travel expenses associated with her assignment in San Francisco that are reimbursed by her employer are not taxable income to her as they are considered temporary business travel and not personal commuting expenses.

More than one year or indefinite . If the assignment is expected to last more than one year or is for an indefinite period of time, the employee’s tax home generally moves to the temporary workplace. This is the case even if the assignment ends early and actually lasts one year or less. Consequently, travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee as personal commuting expenses.

Example: Chris lives and works in Dallas but is assigned by his employer to work in Oklahoma City for 15 months before returning to Dallas. Chris’s travel expenses associated with his assignment to Oklahoma City that are reimbursed by his employer are taxable income to him as personal commuting expenses.

One year or less then extended to more than one year . Sometimes an assignment is intended to be for one year or less, but then is extended to more than one year. According to the IRS, the tax home moves from the regular workplace to the temporary workplace at the time of the extension. Therefore, travel expenses incurred between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are non-taxable business travel expenses until the time of the extension, but are taxable compensation as personal commuting expenses after the extension.

Example: Beth’s employer assigns her to a temporary workplace in January with a realistic expectation that she will return to her regular workplace in September. However, in August, it is clear that the project will take more time so Beth’s assignment is extended to the following March. Once Beth’s employer knows, or has a realistic expectation, that Beth’s work at the temporary location will be for more than one year, changes are needed to the tax treatment of Beth’s travel expenses. Only the travel expenses incurred prior to the extension in August can be reimbursed tax-free; travel expenses incurred and reimbursed after the extension are taxable compensation.

When an employee’s residence and regular workplace are in the same geographic location and the employee is away on a temporary assignment, the employee will often return to the residence for weekends, holidays, etc. Expenses associated with travel while enroute to and from the residence can be paid or reimbursed by an employer tax-free, but only up to the amount that the employee would have incurred if the employee had remained at the temporary workplace instead of traveling home.

Travel to a temporary workplace – Special situations

In order for an employer to treat its payment or reimbursement of travel expenses as tax-free rather than as taxable compensation, the employee’s ties to the regular workplace must be maintained. The employee must expect to return to the regular workplace after the assignment, and actually work in the regular workplace long enough or regularly enough that it remains the employee’s tax home. Special situations arise when an employee’s assignment includes recurring travel to a temporary workplace, continuous temporary workplaces, and breaks in assignments to temporary workplaces.

Recurring travel to a temporary workplace . Although the IRS has not published formal guidance which can be relied on, it has addressed situations where an employee has a regular workplace and a temporary workplace to which the employee expects to travel over more than one year, but only on a sporadic and infrequent basis. Under the IRS guidance, if an employee’s travel to a temporary workplace is (1) sporadic and infrequent, and (2) does not exceed 35 business days for the year, the travel is temporary even though it occurs in more than one year. Consequently, the expenses can be paid or reimbursed by an employer on a tax-free basis as temporary business travel.

Example: Stephanie works in Location A but will travel on an as-needed basis to Location B over the next three years. If Stephanie’s travel to Location B is infrequent and sporadic and does not exceed 35 business days a year, her travel to Location B each year can be reimbursed by her employer on a tax-free basis as temporary business travel.

Continuous temporary workplaces . Sometimes an employee does not have a regular workplace but instead has a series of temporary workplaces. If the employee’s residence cannot qualify as his or her tax home under a three-factor test developed by the IRS, the employee is considered to have no tax home and is “itinerant” for travel reimbursement purposes. In this case, travel expenses paid by the employer generally would be taxable income to the employee.

Example: Patrick originally worked in Location A, but his employer sends him to Location B for eleven months, then assigns Patrick to Location C for another eight months. Patrick will be sent to Location D after Location C with no expectation of returning to Location A. Patrick does not maintain a residence in Location A. Travel expenses paid to Patrick by his employer will likely be taxable income to him.

Breaks between temporary workplaces . In an internal memorandum, the IRS addresses the outcome when an employee has a break in assignments to temporary workplaces. When applying the one-year rule, the IRS notes that a break of three weeks or less is not enough to prevent aggregation of the assignments, but a break of at least seven months would be. Some companies choose to not aggregate assignments when the breaks are shorter than seven months but are considerably longer than three weeks, given the lack of substantive guidance from the IRS on this issue.

Example: Don’s regular workplace is in Location A. Don’s employer sends him to Location B for ten months, back to Location A for eight months, and then to Location B again for four months. Although Don’s time in Location B totals 14 months, since the assignments there are separated by a break of at least seven months, they are not aggregated for purposes of applying the one-year rule. Consequently, the travel expenses associated with each separate assignment to Location B can be reimbursed by the employer on a tax-free basis as temporary business travel since each assignment lasted less than a year.

Conclusion

The tax rules regarding business travel are complex and the tax treatment can vary based on the facts of a situation. Employers must carefully analyze business travel arrangements to determine whether travel expenses that they pay or reimburse are taxable or nontaxable to employees.

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Temporary Work Locations & Commuting Expenses Tax Deductions

by Team Falcon · Published · Updated

Table of Contents

What does the IRS consider a temporary work location and how does this impact commuting expenses write offs? Read to find out.

Many people, particularly self-employed individuals, and independent contractors take jobs that last only a short period of time. These jobs could also be called temporary work. In addition, for some of these temporary jobs, the worker is required to commute to a temporary work location. And the expenses of this work commute can add up. Therefore, many tempory workers wonder, are commuting expenses a tax write-off?

Read this article to learn how the IRS defines a temporary work location, and how to determine if your temporary work location commuting expenses are a tax write-off.

How does the IRS define a temporary work location?

The IRS defines a temporary work location as a work location expected to last for less than a year. For example, an employee’s or contractor’s commute between their home and regular work location is not a deductible business expense.

Daily round-trip commute expenses are tax-deductible, regardless of the distance, if the work location is temporary then the

Factors that Determine a Temporary Work Location

Temporary employment isn’t considered temporary for work locations if it’s expected to last longer than one year. Also, temporary employment is not considered temporary if it was initially planned to last less than a year but ended up lasting longer than a year. Therefore, in this case, the commuting expenses are not deductible. For example, an individual accepts an offer for a new full-time job but resigns within the first year of employment.

Also, a work location is not considered temporary if the employment was initially expected to last less than a year and at a later date was expected to last more than a year. Further, once it is realized that the employment will last longer than a year the work location is no longer considered temporary.

What does the IRS consider commuting expenses?

The IRS defines a commute as ‘transportation between your home and your regular place of work’. Please review this article for more detailed information on commuting expenses, How Does the IRS Define Commuting? .

What if I have more than one work location?

If the employee works between two or more work locations the commuting expenses between the two work locations are deductible. Also true for someone employed by two different employers. In the event that the commuter does not go directly from one location to the other, only the amount of the commuting expense is deduct ible.

No Ordinary Place of Work

Many workers have no ordinary place to work. Meaning, they don’t have a regular office that they go to on a daily basis, Monday through Friday. Instead, these workers are traveling around to different work locations throughout the day and throughout the week.

What commuting expenses are tax-deductible if you travel to different work locations for work? Commuting expenses aren’t deductible if the job requires you to travel to different workplaces around the city where you live. However, if the commuting requires the taxpayer to travel outside of their metropolitan area, then these commuting expenses are deductible. For information about what qualifies as “Away From Home”, review the post, IRS Business Travel Definition for “Away From Home” .

Temporary Work Location vs Travel

Transportation is a travel expense if the temporary work location is outside of the area where the taxpayer lives and it involves overnight stay. A travel expense is not a temporary work location commuting expense.

Therefore, expenses, in this case, deductible business travel expenses instead of commute expenses. For more information on business travel expenses please review the following post, What Qualifies as Tax Deductible Business Travel Expenses .

How do I track of mileage expense write offs?

Odometer Log Enter the start and end odometer readings of your business transportation, Falcon Expenses calculates miles driven and expense reimbursement amount using the custom reimbursement rate set in the app. Check out this article for more information, Falcon Expenses Odometer Log Feature .
Start and End Trip Addresses Enter start and end address for a tax deductible commute or transportation, Falcon Expenses calculates the number of miles driven and the expense reimbursement amount. Check out this article for more information, Falcon Expenses Addresses Feature .
GPS Mileage Tracker Use an integrated GPS tracker to track tax deductible business transportation miles while you are driving. Falcon Expenses will calculate the deductible mileage expense amount for your when the trip is complete. Check out this article for more information, Falcon Expenses GPS Tracker .

About Falcon Expenses

Falcon Expenses is a top-rated mobile application for self-employed and small businesses to track expenses and tax deductions. Falcon customers record $6,600, on average, in annual tax deductions. Start today. The longer you wait the more tax deductions you miss out on.

Automatically track mileage expenses and expenses, keep an odometer log, receipt vault and log billable hours. Quickly organize expenses by time period, project, or client. Easily prepare reports to email to anyone in PDF or spreadsheet formats, all from your phone. Use for keeping track of tax deductions, reimbursements, taxes, record keeping, and more. Falcon Expenses is great for self-employed, freelancers, realtors, business travelers, truckers, and more.

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Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than 1 year, you generally can’t deduct a capital expense. However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. The section 179 deduction, special depreciation allowance, and depreciation deductions are discussed later.

Can You Claim Travel From Home to Work As a Tax Deduction?

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Federal tax guidelines say the list of deductible business expenses includes driving your car for work. The bad news is that this comes with a boatload of rules that exclude many taxpayers from claiming the write-off. Knowing whether things like driving to and from work are tax-deductible spares you from the IRS telling you, "Your deductions are disallowed. Send more money."

Commuting from home to work is not tax-deductible. Carrying tools or files you need for work or putting the company logo on the car doesn't change that.

Who Can Deduct Car Expenses?

If you're an employee, the IRS explains that the Tax Cuts and Jobs Act (TCJA) of 2017 changed the game. Until 2017, employees who used their car for work could claim a write-off for driving expenses if they itemized deductions instead of taking the standard deduction. Under the TCJA, that's not an option. Even if your employer doesn't reimburse you for the driving, there's no tax write-off.

There are exceptions: Armed Forces reservists, qualified performing artists, and fee-based state and local government officials. The IRS says performing artists qualify if:

Their adjusted gross income is $16,000 or less.
They perform for two or more employers.
At least two of the employers pay the performer $200 or more.
Their performing arts expenses are at least 10 percent of their gross income from performing.

Business owners and self-employed individuals claim vehicle expenses on their Schedule C; farmers claim them on Schedule F. If you have a vehicle you use 100 percent for business, all your costs go on the list of deductible business expenses. If the car is part business, part personal, it's more complicated.

Is Driving to and From Work Tax Deductible?

The IRS says if you qualify to claim car expenses, you can write them off either by taking a flat per-mile deduction, which changes year to year, or the actual costs of driving such as gas, oil and repairs. If you use your car 40 percent for business, you can take off 40 percent of expenses. The expense of parking fees and tolls is a separate write-off you can claim either way.

Normally, driving to and from work isn't tax-deductible. If you're an assistant manager at a retail store or an attorney working out of the partnership offices, the drive to your workplace doesn't count as a business trip. Even if you make business calls while driving or carry tools for work in the trunk, that doesn't count. Nor can you write off the cost of parking at your regular workplace.

Your morning commute can qualify for the list of deductible business expenses if it fits into one of the special cases. If you have a regular work location but you're temporarily working somewhere else – a construction site, the county courthouse – the drive from home to your temporary work location is deductible.

Driving from your office to a temporary workplace or meeting with clients is also deductible. If you use a home office as your primary place of business, that rule applies too; driving from home to consult with your client is a legit deduction.

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Fraser Sherman has written about every aspect of working life: the importance of professional ethics, the challenges of business communication, workers' rights and how to cope with bullying bosses. He lives in Durham NC with his awesome wife and two wonderful dogs. You can find him online at frasersherman.com

What is the average rate to be reimbursed by an employer for gas mileage, how to ask your boss for gas compensation, commuting miles vs. business miles, what can i write off if i work from home, what deductions can i claim as a truck driver, accounting for company use of an employee's vehicle, tax deduction for commuting miles to a second job, how to keep track of deductible job expenses, the tax advantage of leasing a car if self-employed, most popular.

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What is a Tax Home, and How Does it Impact Travel Expenses?

Written by Liz Farr, CPA

Modified Aug 8, 2019

Today’s super-mobile workforce means that you may have clients who are splitting their time between multiple work locations. In these situations, understanding the concept of a tax home will help clarify the treatment of travel expenses.

What is a Tax Home?

The IRS defines a tax home as the city or general area where someone’s main place of business or work is located. If your client travels away from their tax home for work purposes, their travel expenses may be deductible.

“May be deductible” has taken on new meaning since the Tax Cuts and Jobs Act was passed in late 2017. Under prior law, employees could deduct unreimbursed work expenses, including travel expenses, as a miscellaneous itemized deduction. However, from 2018 though 2025, that deduction has been suspended, except for Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.

The best bet for employees who no longer qualify to deduct their travel expenses is to set up an accountable plan with their employer. Reimbursed travel expenses under an accountable plan are not taxable to the employee, while reimbursements under a non-accountable plan are included in the employee’s wages.

However, self-employed individuals can still deduct expenses for travel away from their tax home as business expenses.

A tax home may or may not be the same place as the family home, or a place that your client returns to regularly. For clients who work in more than one place, their tax home is their main place of business or work. This is determined by considering the following factors:

The total time spent in each place.
The level of business or work activity in each place.
The relative amount of income earned in each place.

Expenses for work-related travel away from someone’s tax home are deductible or can be reimbursed tax-free under an accountable plan. Travel expenses include transportation, meals, lodging, laundry and dry cleaning, and incidentals.

For example, Ryan is a self-employed consultant living in Denver. He spends one week of every month working onsite for a client in Salt Lake City. Ryan spends the remaining three weeks of the month working with clients in the Denver area. Ryan’s tax home is Denver, so his travel, lodging and meal expenses for his monthly trips to Salt Lake City are deductible.

Over time, Ryan’s client in Salt Lake City becomes a bigger part of his work. Eventually, Ryan is spending all of his working time in Salt Lake City and flying home to Denver on the weekends. Now, his tax home is Salt Lake City, and neither his living expenses in Salt Lake City nor his plane fare between Denver and Salt Lake City are deductible.

What About Temporary Work Assignments?

It’s not unusual for an employee to be sent to work in a different location. If that assignment is temporary and the employee maintains a home in the original location, the tax home is still the original location. Travel expenses will be deductible for a contractor. Employee reimbursements under an accountable plan will be tax-free.

But, if the assignment is permanent or indefinite, then the person’s tax home is the new location, so travel expenses are not deductible. Accountable plan reimbursements are now taxable to the employee.

The IRS defines “temporary” as a work assignment that’s expected to last a year or less. If a work assignment that started out as a temporary posting is extended to more than a year, then it becomes an indefinite assignment when the anticipated duration changes.

For example, Kimberly has been working for a company in Boston and is sent to Los Angeles for an eight-month project. Kimberly’s tax home is still Boston. Her employer reimburses her for her travel, lodging and meals under an accountable plan, and those reimbursements are tax-free.

However, seven months into the project, Kimberly’s employer decides to extend her posting in Los Angeles for another eight months, to a total of 15 months. At that point, Kimberly’s assignment becomes indefinite, so her tax home changes to Los Angeles. If her employer continues to reimburse her for living expenses, even if it’s done under an accountable plan, those reimbursements are now taxable.

This only scratches the surface of the tangled web that results when people live and work in multiple locations. Depending on the states involved, your clients may also have state tax issues. IRS Publication 463 , Travel, Gift, and Car Expenses , is a good resource, so be sure to check it out if you have clients in this situation.

Editor’s note: This article was published on the Firm of the Future blog .

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Liz spent 15 years working as an accountant with a focus on tax work as well as working on audits, business valuation, and litigation support. Since 2018, she’s been a full-time freelance writer, and has written blog posts, case studies, white papers, web content, and books for accountants and bookkeepers around the world. Her current specialty is ghostwriting for thought leaders in accounting. More from Liz Farr, CPA

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10 min read

Deductions for temporary out-of-town work assignments.

Submitted By: admin on Sep 8, 2016 3:28:25 PM

The general rule for out-of-town business travel expenses is that you can deduct them as long as the work assignment is “temporary.” (This includes transportation to and from a work site, lodging, 50 percent of meal costs, and so forth.)

On the other hand, if the work assignment is not temporary , your tax home is considered to shift to the work location, and your travel expenses are then considered to be non-deductible personal outlays. In one recent decision, the U.S. Tax Court found in favor of the taxpayer on this issue, which can affect employees who pay their own expenses (without reimbursement) and self-employed taxpayers.

Before getting to the decision, let’s first cover the basics on out-of-town business travel expenses.

Deduction Basics

When you travel away from your tax home overnight on business, you can deduct the round-trip transportation cost (for example, car expenses or airfare and parking), plus 100 percent of lodging costs for business days, plus 50 percent of meal costs for business days, plus 100 percent of incidentals (such as dry cleaning costs) for business days.

Your tax home is located at:

1. Your regular place of business or your principal place of business if you have more than one regular place of business; or 2. Your regular abode if you have no regular or principal place of business.

The purpose of allowing deductions for out-of-town business travel expenses is to give you a tax break for all the duplicative expenses incurred while at the temporary work location. However, an itinerant worker (such as a traveling salesman or self-employed casualty insurance adjuster who moves from one disaster site to the next) doesn’t have any tax home and therefore does not have any duplicative expenses. As a result, itinerant workers can only deduct transportation costs between work locations (no deductions for lodging, meals, and incidentals).

In general, an out-of-town work assignment at a single location is considered to be temporary, which is a prerequisite for deducting travel expenses, if it is realistically expected to last one year or less and does in fact last that long. If an away-from-home assignment is realistically expected to last more than one year, or there’s no realistic expectation that it will last one year or less (such as an assignment with an indefinite term), the assignment will be treated as indefinite regardless of how long it actually lasts. In this scenario, the travel expenses are non-deductible.

Of course, expectations can change. If so, the worker will not be penalized under these rules. For example, if an initial eight-month assignment is extended for six additional months, the assignment is treated as no longer being temporary when it is extended. But travel expenses for the first eight months can still be deducted, because the assignment was temporary during that period.

Instead of keeping records of actual expenditures for lodging, meals, and incidentals while out of town on business, an employee can choose to deduct a fixed daily (per diem) IRS-approved amount (subject to the 50 percent allowance rule for the portion of the per diem that is allocated to meals). More specifically, the per diem amount can be deducted regardless of actual expenditures for lodging, meals, and incidentals as long as the employee is able to prove with adequate substantiation the time, place, and business purpose of the travel. While receipts are not required to prove expense amounts when using the per diem method, you may find it convenient to keep lodging receipts (which conclusively prove the dates and places of your travel) on which you note the business purpose for the travel.

Key Point: The IRS-approved per diem rates can be found on the General Services Administration’s website at www.gsa.gov/perdiem .

Finally, employees must treat unreimbursed business travel expenses as a miscellaneous itemized deduction item. If the travel expenses, when combined with other miscellaneous itemized deduction items (such as investment expenses, fees for tax preparation and advice, and union dues), exceed 2 percent of the employee’s adjusted gross income, the employee can deduct the excess.

Recent Tax Court Decision

In a 2014 case, the Tax Court concluded that the taxpayer’s six-month out-of-town work assignment was indeed temporary, which allowed him to deduct his business-related travel expenses. However, his claimed deductions were reduced because he failed to keep adequate records of all his expenses.

Facts of the case: Roj Carl Snellman was married and lived in Florida. In late May of 2009, he began work as a project manager at a job site in Missouri. His assignment was to manage the development of a system to track a company’s customer credit card payments. While the company paid Snellman a salary equivalent to $90,000 a year, the project was expected to be completed by the end of 2009, at which point his employment would end. Snellman wasn’t reimbursed for any work-related expenses, so his out-of-town expenses came out of his own pocket.

Snellman drove from his home to the Missouri work location and stayed in a hotel from May 25, 2009 through June 10, 2009. On June 11, he signed a lease to rent an apartment for $525 per month through December 31, 2009. As it turned out, the company experienced financial difficulties, and Snellman’s employment was terminated early on November 2, 2009. He drove back home to Florida about two weeks later.

On their joint 2009 federal income tax return, Snellman and his wife claimed car expenses of $4,060 plus $27,200 for lodging, meals, and incidentals (based on the applicable per-diem rate of $170). After auditing his 2009 return, the IRS disallowed all of these deductions on two grounds:

First, the IRS claimed that Snellman’s tax home was in Missouri for the entire time he was there, which meant he wasn’t entitled to any business travel deductions because he wasn’t away from home. Second, the IRS disallowed his travel deductions due to inadequate substantiation.

Snellman took his case to Tax Court where he was rewarded with an opinion that was partly in his favor. Specifically, the court agreed with Snellman that his tax home in 2009 was in Florida rather than Missouri, which was a prerequisite for deducting travel expenses. Snellman credibly testified that he was hired to work in Missouri as a temporary project manager for approximately seven months, and that the employment actually lasted for only six months. His testimony that his employment was temporary, as opposed to indefinite, was corroborated by the fact that his Missouri apartment lease was scheduled to expire on December 31, 2009 and that he negotiated an addendum to the lease agreement to allow for early termination on short notice if his employment ended sooner than expected.

However, the Tax Court reduced Snellman’s claimed deductions because he didn’t maintain the required records. He didn’t keep a contemporaneous log of his business-related car mileage, and he didn’t properly keep track of the dates and business purpose for his lodging expenses. Had he kept good records, he would have won a total Tax Court victory. ( Roj Snellman, T.C. Summary Opinion 2014-10)

What Other Taxpayers Can Learn from the Case

The Snellman decision illustrates that failure to keep adequate records for out-of-town business travel expenses may mean the IRS will completely deny your claimed deductions. You may have to go to Tax Court if there is really no doubt that you are entitled to at least some deductions. As stated earlier, Snellman would have won a complete victory in the Tax Court if he had kept good records, and he could have avoided the entire issue if he had done so. If you have questions or want more information about keeping records of business travel expenses, consult with your tax adviser.

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How to Get a Tax Break for Temporary Work Assignments

The IRS often views business travel expense deductions with a healthy dose of skepticism. Consult with your professional tax advisor to ensure you’re on firm ground.

Ken Berry, JD

Sep. 12, 2023

If you travel away from your tax home on business in your vehicle, you can deduct your gas and related expenses. However, you generally can’t write off the regular expenses of getting back and forth from work, even if you travel a long distance each day. The IRS considers this daily commute to be a nondeductible personal expense.

Conversely, suppose you’re working on a project that takes you far away from home for several months. In that case, you may qualify for a special tax law exception if this temporary assignment lasts less than one year. As a result, you may be able to deduct your travel expenses between your home and the temporary job site.

However, if the assignment lasts indefinitely, you won’t qualify for deductions under this special tax law exception. It all has to do with the way the IRS defines your “tax home” and “temporary assignments” for tax purposes. Let’s take a closer look.

Basic rules : If your assignment or job away from your main place of work is temporary, your tax home doesn’t change. You’re considered to be away from home for the entire period while you’re away from your main place of work. Accordingly, you can write off your travel expenses if they otherwise qualify for deductions.

Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less. However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home. Thus, you can’t deduct your travel expenses while you’re there.

An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year—whether or not it actually lasts for more than one year.

If your assignment is indefinite, you must include in your income any amounts received from your employer for living expenses, even if they are called travel allowances and you account to your employer for them.

Note : Previously, employees could personally deduct unreimbursed travel expenses as miscellaneous expenses, subject to a floor of 2% of adjusted gross income (AGI). But the Tax Cuts and Jobs Act (TCJA) suspends the miscellaneous expense deduction for 2018 through 2025. Thus, this is not currently an option, regardless of AGI.

Finally, remember to carefully observe the rules stated above and keep the requisite records to back up your claims. If you handle things the right way, you may even be able to deduct your travel expenses of coming home on the weekend after spending the workweek at a temporary job site.

Caution : The IRS often views business travel expense deductions with a healthy dose of skepticism. Consult with your professional tax advisor to ensure you’re on firm ground.

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The rules on travel and subsistence: a long and winding road

Employment tax.

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As our working patterns shift and more of us move to hybrid working, what impact will this have on claiming tax relief for travel and subsistence expenses?

What is the issue?

While travel and subsistence is an area of compliance that seems straightforward on the face of it, it can actually be extremely complex for employers to understand and get right.

What does it mean for me?

Key considerations include rules concerning permanent and temporary workplaces, ordinary commuting and working from home. Make sure your policies are clear on what travel and subsistence expenses employees can claim.

What can I take away?

With the move to widespread hybrid working, we expect to see HMRC increasing its focus on these types of travel and subsistence expenses.

The coronavirus pandemic has significantly changed the way we work. Homeworking has become the norm for many more employees who previously spent all or almost all of their time in offices. Millions of us are now working from home for two or three days each week and spending the rest of the working week in the office. Homeworking and hybrid working appear to be here to stay.

That all sounds familiar and straightforward but the nub of the problem is that, for travel and subsistence expenses, even though more employees work remotely and/or are much more mobile than they used to be, the current tax rules covering employee travel and subsistence have not changed substantively since April 1998.

It was widely hoped back in 2016, when the last review of the travel and subsistence rules took place, that some of the shortcomings in the rules might be addressed. But the fact they were not should come as no real surprise, as the 1998 amendment itself aimed to change rules that had dated back some 140 years.

While travel and subsistence is an area of compliance that seems straightforward on the face of it, it can actually be extremely complex for employers to understand and get right. It is no coincidence that HMRC has issued a guidance booklet with over 70 pages to help explain the rules, and that it focuses on travel and subsistence during its reviews of employer records.

In the past, HMRC has undertaken detailed reviews of situations where employees have a workplace at home but also another elsewhere (such as their employer’s headquarters) and the employer meets the cost of journeys between their home and the other workplace; or where the employer is paying travel and subsistence expenses for what they believe is a move covered under the ‘detached duty’ rules allowing for the amounts to be paid tax free. With the move to widespread hybrid working, we expect to see HMRC increasing its focus on these types of travel and subsistence expenses.

Within the current system, there are two main things to bear in mind relating to travel and subsistence.

The first (under the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 s 337) is that tax relief is provided for ‘travel in the performance of the duties of the employment’. In other words, relief is given for travel that is an intrinsic part of an employee’s job and may include journeys between two workplaces. This rule is generally well understood by employers and often applied correctly in practice, but this could change going forward as more employees work from home and employers incorrectly conclude that their employees’ homes are workplaces for tax purposes.

However, it is in relation to the second rule (under ITEPA 2003 s 338) – which provides tax relief for necessary journeys to workplaces that employees must attend for work purposes, apart from those amounting to ‘ordinary commuting’ – that problems most often arise.

Key terms and considerations

The key terms and considerations needed to understand the rules are summarised below. Note that the rules for subsistence are similar to those for travel. If a business journey is allowable for tax purposes, the subsistence cost attributable to that journey generally is also allowable, unless there are issues around excessive expenditure, dual-purpose trips, and round sum or benchmark allowances.

Travel and subsistence expenses which attract tax relief and satisfy the exemption for paid or reimbursed expenses (ITEPA 2003 s 289A) do not need to be reported to HMRC.

Any travel expenses paid by the employer which do not attract tax relief, and which are not exempted by ITEPA 2003 s 289A, will (depending on the circumstances and subject to a PAYE Settlement Agreement being in place to cover such costs) either need to be:

reported and dealt with at the tax year-end on forms P11D and P11D(b);
reported and subjected to tax and Class 1 National Insurance Contributions (NIC) under PAYE at the time of payment; or
reported and dealt with at the tax year-end on forms P11D for tax purposes and subjected to Class 1 NIC under PAYE at the time of payment.

HMRC penalties for non-compliance can be costly. For example, if incorrect P11Ds are filed negligently, a penalty of up to £3,000 per form can be levied by HMRC (although normally only in the most serious cases).

It could also mean that employers are liable for any tax and NIC that has been underpaid, potentially on a grossed-up basis, plus late payment interest. This can get expensive and large settlements have been seen on HMRC compliance reviews covering travel and subsistence expenses, particularly for large businesses. Settlements are often in relation to homeworkers having another permanent workplace and being paid for their travel expenses between their homes and those permanent workplaces; and travel from home to places which are not considered to be a temporary workplace.

1. Permanent workplace

A ‘permanent workplace’ is considered to be somewhere that an employee works regularly to perform their duties of employment. In many instances, it can be clear whether or not somewhere is an employee’s permanent workplace and, therefore, whether a journey to it can be deemed ordinary commuting. It is also possible for an employee to have more than one permanent workplace at the same time.

Travel to or from a permanent workplace and an employee’s home is generally treated as private rather than business travel, and so tax relief is not due on any related costs that are paid or reimbursed by an individual’s employer.

Necessary travel which takes place between one permanent workplace and another while an employee performs their duties of employment during the working day is treated as business travel and attracts tax relief.

2. Temporary workplace

A ‘temporary workplace’ is somewhere the employee attends to perform a task of limited duration or for a temporary purpose. So even if they attend it regularly, it may still not be classed as a permanent workplace.

There is, however, a special rule which treats a workplace that would otherwise be a temporary workplace as a permanent workplace, where an employee spends or is likely to spend more than 40% of their working time at that workplace over a period that lasts or is likely to last more than 24 months (known as the ‘24 month/40% rule’).

Bear in mind that the 24 month/40% rule treats locations that would otherwise be ‘temporary workplaces’ as ‘permanent workplaces’. If the workplace is not temporary in the first place (as it does not meet the definition laid out in the Employment Income Manual at EIM32075), the workplace would already be treated as a permanent workplace.

Travel to or from a temporary workplace and an employee’s home is generally treated as business rather than private travel; and so tax relief is due on any related costs that are paid or reimbursed by an individual’s employer, unless it is substantially the same journey in which case no deduction is allowable (ITEPA 2003 s 338(2)). This is not often considered by employers and very few expenses policies ever have this covered.

Such distinctions can be confusing – and as highlighted above, this is one of the areas of travel and subsistence on which HMRC focuses its attention. Employers often fail to consider the task involved or the purpose for working at a given location, which is what the legislation requires.

The employee’s attendance is not in question; the issue is whether the task itself will be undertaken for a limited duration or whether it is performed for a temporary purpose. The trouble is that many employers fail to look too deeply at the matter and simply consider the ‘24 month/40%’ rule, without first considering whether the workplace is capable of being a temporary workplace.

HMRC may ask for contracts, diaries and job descriptions in order to determine whether the locations visited meet the definition of a ‘temporary workplace’. Covid-19 has also presented a particular issue in that HMRC’s view is that the clock remained ticking even when government gave instructions to work from home where possible, so many employers are likely to find the 24 month period has expired during the last few years while employees have been working from their homes.

It should also be remembered that the word ‘task’ is not defined in the legislation. As a result, the normal dictionary definition applies. Here a ‘task’ is something specific; for example, a piece of work, rather than a group of things to do, which is the nature of a job more generally.

3. Ordinary commuting

For most employees, ‘ordinary commuting’ is the journey they make most days between their home and permanent workplace. Travel and subsistence expenses would normally be taxable here if the costs of ordinary commuting were paid for or reimbursed by their employer, or if travel facilities were provided.

But for some staff, the situation is more complicated. For example, if the journey to a temporary location is broadly the same as an employee’s ordinary commute to their permanent workplace, tax relief would be denied on the basis that the journey is normally treated as private travel.

This rule applies generally if the journey is in the same direction or on the same route, and amounts to less than 10 miles extra each way than the normal commute. This area is rarely explained in most employers’ travel and expenses policies but is again something that HMRC is increasingly focusing its energy on, particularly in major towns and cities.

4. Working from home

A key consideration when moving to a homeworking arrangement is whether the employer will meet the cost of the employee’s travel between their home and the office when they do travel into the office. This is of particular relevance to hybrid working arrangements.

The tax and NIC treatment of employees’ travel expenses can be complex and is particularly difficult to apply practically to modern working practices, such as hybrid working.

HMRC recently updated its guidance covering employees who work from home (EIM01471) to cover hybrid working. It now includes ‘Travel in the performance of the duties: travel to and from home where it is a place of work’ at EIM32370. The clear challenge with hybrid working is that when employees do travel into the office, often the statutory conditions in ITEPA 2003 s 337 will not be met for home to be a workplace for tax purposes, and under ITEPA 2003 s 338 the office will remain a permanent workplace.

Employers must therefore be clear when agreeing hybrid or homeworking arrangements which travel and subsistence expenses can be paid tax and NIC free and which cannot. EIM32174 covers ‘Travel for necessary attendance: employees who work at home: a hybrid working: example’.

In rare cases, ITEPA 2003 s 337 may apply, allowing for tax relief between the home (as a workplace) and another permanent workplace, as covered in EIM32370. The problem with applying ITEPA 2003 s 337 to hybrid working is that in many cases the location of the home isn’t dictated by the requirements of the job. HMRC notes: ‘For most people, the place where they live is a matter of personal choice. So the expense of travelling from home to any other place is a consequence of that personal choice, not an objective requirement of their job.’ The relief in ITEPA 2003 s 337 is therefore unlikely to apply to the majority of homeworking and hybrid working arrangements. It is worth noting that HMRC’s guidance says:

‘Most employers provide all the facilities necessary for work to be carried out at their business premises. So where employees work at home, they usually do so because it is convenient rather than because the nature of the job actually requires them to carry out the duties of their employment there. However, where it is an objective requirement of an employee’s duties to carry out substantive duties at the home address, then his or her home is a workplace for tax purposes.’

ITEPA 2003 s 338 then needs to be considered. This allows tax relief for travel expenses for the necessary attendance at any place in the performance of the duties of employment. To determine whether tax relief is due under s 338 for journeys between an employee’s home and their employer’s business premises, we need to consider whether the employee is travelling to a permanent or temporary workplace (see definitions above).

HMRC often quotes the case of Kirkwood v Evans [2002] EWHC 30 when looking at a ‘working from home’ situation. It concluded that although Mr Evans went to the Leeds office for only one day a week, it was a permanent and continuing part of his duties to do so. The judgment dealt with the situation briefly in a single paragraph, also stating that Mr Evans had conceded that the Leeds office was not his temporary workplace, even though the General Commissioners had concluded it was. The judge justified this view by saying: ‘This attendance was both regular and was not for the purpose of performing a task of limited duration or for some other temporary purpose.’

Perhaps Mr Evans was ill-advised to admit that Leeds was a permanent workplace. It could be argued that he undertook certain specific tasks each time he went there that were of limited duration; namely, delivering work he had performed since his last visit, taking new work with him, and downloading information from a database. On the other hand, HMRC seemed to argue that the word ‘task’ refers to doing these things each week on a continual basis.

There are, of course, also other special rules to consider on top of the above that cover areas relating to international trips, area-based and depot-based employees together with emergency call-outs.

HMRC Travel Expenses & Temporary Workplace Rules

11 May 2022

Claiming tax relief on travel expenses

The Income Tax (Earnings and Pensions) Act 2003 (ITEPA) states that in order for a travel expense to be allowable, it must satisfy one of two tests:

It is “necessarily incurred in the performance of duties” (ITEPA s.337)
The travel is “for necessary attendance” (ITEPA s.338)

Additionally, the employee must be “obliged to incur and pay them as the holder of employment” (ITEPA s.337(1)(a) and 338(1)(a)).

Generally speaking, there is no tax relief available to employees for the costs of “ordinary commuting”. This has been defined as travel between the employee’s home and permanent place of work.

However, there are journeys which are made in the “performance of duties”, which can include trips between the office and another work location, such as visiting a client or customer or other “temporary workplace.” An example of this might be a solicitor visiting clients at home or attending court.

The word “temporary” is important here and has a specific meaning in tax law that is not the same as the ordinary, natural meaning of the word. HMRC describes a temporary workplace as being where employees are required to undertake any work at another location for a temporary purpose as part of their “core” employment.

Temporary and permanent places of work

Most employees have no problem identifying their permanent place of work because it is the place they regularly go to work. Perhaps it is an office, factory or retail outlet, but notably it is the venue the employer expects their employee to be. Some employees may have more than one permanent work venue, for example if their employer requires them to work in more than one location.

A temporary workplace is classed as a location where the employee attends irregularly or for a limited amount of time. For example, an employee who works in Leicester is required to work in Nottingham for a year. The Nottingham location would be classed as a temporary workplace under the rules.

However, the temporary workplace rule ceases to apply if the employee works at an alternative location for a continuous period of work over 24-months. This is known as the 24-month rule. The law defines a period of continuous work as a period during which the employees’ duties are performed to a meaningful extent at a particular workplace.

HMRC considers duties are performed to a meaningful extent if the employee spends 40% or more of their time at that workplace. Complications can arise where employees spend less than 40% of their time at a temporary workplace as to whether the 24-month rule applies. It may be wise at that point to seek advice from an accountant as to the particular circumstances.

The 24-month rule

This is a specific condition that allows employees to claim travel expenses for journeys between the employee’s home and their temporary workplace. The idea is that visiting somewhere other than a permanent workplace can lead to undue costs for the employee. HMRC views travelling to a temporary workplace as a legitimate business expense.

The 24-month rule has two notable conditions which must both be met in order for an employer to NOT be eligible to claim travel expenses:

The employee must have spent or is likely to spend more than 40% of their working time at a work location, AND
The employee must attend or be likely to attend the venue for a period lasting more than 24 months.

If both of these criteria are met, the employer cannot claim tax relief on travel expenses to and from a place of work. So, if the employee spends more than 40% of their time at a work venue for over 24-months, HMRC class it as a permanent workplace.

As soon as the employer knows a contract will last longer than 24-months, they must stop claiming tax relief. This means that if the employer knows the contract at the alternative location will last at least two-years, they cannot claim from the start.

24-months is the total calendar period, and not the actual amount of time the employee spends working at the location. For example, if the employee works for two days a week commencing on 1st January, or if they work six-months on and then six-months off, they will reach 24 months on 1st January two years after. This continues to be the case even if new contracts are signed along the way.

In the example given above, the 40% rule would still apply. So a break of 15-months (60% of any two-year period) would be sufficient to make sure the 24-month rule does not apply. If the contract length is unclear, tax relief is available if it is assumed the agreement to work at the temporary location will not last more than 24-months.

As it is possible to have more than one permanent workplace, if the 24-month rule is met, the workplace is automatically deemed permanent, even if the rule can also be met in other work locations.

Tax relief is not available for private travel. This is defined as travel to any place that an employee does not need to be for work purposes.

Qualifying travel expenses

The 24-month rule prevents receipt of tax relief on travel expenses to temporary workplaces. But in order to claim tax relief, the employee must have had to incur the travel expenses in the first place.

Travel expenses for employees are tax deductible when certain conditions are met:

Employees personally pay their own expenses receiving no reimbursement from their employer
The employer reimburses any travel expenses paid for by the employee
The employer pays the costs directly on the employee’s behalf
The cost is met by travel tickets or credit tokens provided to the employee
Travel facilities, such as accommodation, are provided directly to the employee.

Travel expenses include the actual cost of the journey and all other associated costs such as food, accommodation, toll fees, car parking, taxis or vehicle hire charges.

Which travel expenses are allowable?

Site-based employees.

This is a category of employee who carry out their duties across several sites and means their place of work does not readily fit neatly into the definition of what is and what is not a temporary workplace within ITEPA guidelines. Each site must be examined on the facts and a determination made as to whether they are temporary or permanent sites. If it is deemed to be permanent, then under the rules, travel expenses are not allowable.

Ordinary commuting

Travel from home to a place of work is not allowable for tax purposes unless it meets one of the listed exceptions. If an employee is on secondment, their travel expenses may be allowable, but so long as an employee has chosen where they work (e.g., not on secondment) and choses where they live, there is no tax relief for the costs of travelling to and from work.

Travel cards

The underlying requirement of the expenditure must be considered, simply because an employee uses their existing rail season ticket for visiting a client utilising the same ticket, does not make part of the ticket’s cost allowable. However, if the employee is required by their employer to incur a higher level of expenditure above their ordinary commute, then the extra amount is allowable.

Accompanying spouses

If the employee’s spouse accompanies them, then those expenses are generally not allowed, unless the spouse’s travel meets the requirements. This is whether the travel expenses have necessarily been incurred for the purposes of the employment or are incidental to it. Such situations are rarely encountered, and more general reasons for spouses to travel are more likely to arise from attending particular functions, where the employee’s requirement to attend on their own is not enough. If an employee is travelling overseas, then the additional costs of their accompanying spouse may be allowable.

One-off visits

If an engineer has to visit a customer to check some equipment, for example, the travel costs are allowable. Employees who are required to visit customers or suppliers, attend training events, meetings or perform other visits expected of their role, then travel expenses are allowable.

Travel obligations

For those employees who are required to travel between work locations as part of their employment, travel costs are allowable.

Area employees

If an employee is responsible for an area over which they perform their duties, the travel costs within that area are allowable.

Travel between group employments

Where the employee is employed by a group of companies (holding company and 51% of subsidiaries), the directors or other employees may have to travel between locations to carry out their duties. Those employees are entitled to deductions for the cost of travelling to the other group companies for that purpose. The rules surrounding group companies are technical and complex, so it may be sensible to read through HMRC travel expenses temporary workplace guidance, if there is any doubt.

Level of reimbursement

If an employee is reimbursed excessively for their expenses, it will give rise to one of two situations:

If the employer reimburses expenses above the level of expenditure incurred by the employee, then the excess must be treated as earnings and included in payroll.
If the employer reimburses expenses for particularly lavish or extravagant travelling arrangements, it may result in a benefit charge on the employee.

However, if the employee has incurred extra or additional expenses which have not been reimbursed by their employer, then the employee can claim relief. For example, if the employee has been reimbursed £150 towards a £200 train fare, the employee can claim tax relief on the excess £50. This is either done via the employee’s tax return under “employee expenses”, or, if the employee is not required to complete a tax return, they can claim relief on form P87, an excess expenses form.

Breaks in attendance or location

A break in attendance or location, however long or short, does not reset the clock. If the employee is returning to a previous place of work, time continues to run. This is because 24-months is the total calendar period, and not the actual amount of time the employee spends working at the location.

The 24-month rule clock can be reset provided there is a significant change in the commute or location. HMRC does not define what amounts to a significant change, so employers will need to determine this on a case-by-case basis. Resetting the 24-month rule only applies to limited companies that intend to be at a location or venue for over 24 months.

If this is the case, the employee can then revert to the 40% rule, which requires determination as to the length of time they will be away from that location in order for them to claim in the future.

HMRC 24-month rule & travel expenses rules FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert professional advice should be sought.

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law , Tax , Human Resources , Immigration & Employment Law .

Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.

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Employee travel expenses

Travel is quite a tricky area for expenses , but it's one that affects a lot of employees. To help you understand more about what you can and can't claim as expenses when it comes to travel here's a quick run-through of the rules.

Why is travel a complicated area?

The main reason is that the distinction between when a journey is "business" and when it's "private" can get incredibly blurred.

Another reason is that if an employer pays for an employee's private travel, there'll almost inevitably be extra tax to pay.

What exactly counts as business travel?

HMRC say in summary that business travel only covers the following two types of journey:

journeys forming part of an employee's employment duties (such as journeys between appointments by a service engineer or to external meetings)
journeys related to an employee's attendance at a temporary workplace

They also provide a detailed factsheet on employee travel expenses .

Here are the rules around business travel in brief:

No expenses for travelling to and from work

If an employer reimburses an employee for what HMRC call "ordinary commuting" both the employer and employee will have more money to pay over to HMRC in tax. Ordinary commuting, according to HMRC, is any travel between a permanent workplace and home, or any other place which is not a workplace. That means that claiming travel expenses from home to work is not usually acceptable in HMRC's eyes.

Travel between two workplaces is business travel

If an employee has to pay for travel between different office spaces, for example, then any travel costs can be claimed as expenses.

No expenses for "non-work" travel

Any travel between the permanent workplace and somewhere else the employee visits for non-work reasons is not business travel. Non-work includes the employee doing another job for another employer

Travel includes subsistence and accommodation as above

If the business travel includes an overnight stay then the costs incurred for this can be claimed for. You can also claim for subsistence costs incurred during business travel, for example, a meal at the airport.

Subsistence and accomodation costs for ordinary commuting

If you stay over in Edinburgh on a weeknight because you've been asked to attend a meeting which is due to start early the following morning, you can't claim the cost of your hotel stay because it still counts as ordinary commuting. It doesn't matter that my employer has asked you to stay.

Even a late-night journey to work to switch off a ringing burglar alarm would still count as ordinary commuting.

There are only a few limited exceptions, like some late-night taxis home .

Restrictions on costs

HMRC won't restrict the claim to the cheapest form of travel or accommodation available, so it's OK to claim for a plane ticket as opposed to a bus ticket. Hoever, many employers may make rules about what they'll pay for, for example, that they'll pay for standard-class train tickets but not first-class tickets.

Employee expenses for travel in their own car

HMRC treat business mileage travelled in an employee's own car slightly differently to other travel. So long as the mileage reimbursement is equal to, or less than, HMRC's approved mileage payments , the employer doesn't even have to report that mileage on form P11D or pay any extra tax or National Insurance contributions (NICs). Find out more about claiming mileage in our guide to mileage rates and thresholds .

What counts as a workplace for business travel?

Permanent workplaces.

HMRC look at how much of an employee's time is spent at a particular workplace and whether they're regularly there. For example, somewhere an employee goes once a week is nearly always a permanent workplace. By definition from HMRC, if the task is going to last more than 24 months and the employee is going to spend more than 40% of their time on site, the workplace where the task is carried out becomes permanent.

Temporary workplaces

A workplace becomes a temporary workplace if the employee goes there only for a short-term task. Travel to and from a temporary workplace is business travel, not ordinary commuting. That means that you can claim expenses for business travel between both permanent and temporary workplaces.

Travel expenses when you work from home

If an employee works from home simply because it's convenient for them to do so, then any home-to-work journeys count as ordinary commuting.

But if an employee works from home because the job requires them to, for example, if their employer doesn't provide the necessary facilities on site, then "home" becomes a workplace and travel to other workplaces becomes business travel.

You can see from the information above that there are a lot of complications when it comes to claiming expenses for business travel. This guide is no substitute for professional advice for your situation, so make sure that you check HMRC's website carefully and ask your accountant if you're in any doubt.

Self employed? Find out more abouting claiming travel expenses as a self-employed business owner.

Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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The HMRC 24 month rule: what, why, & how it works

Published on August 18, 2023

Travel between offices and worksites is a normal cost of doing business for some workers. But the cost and inconvenience of leaving your usual surroundings can quickly add up.

To reflect this, HMRC offers tax relief on travel expenses to a non-permanent place of work. But it’s not available in certain circumstances - specifically when the famous “24 month rule” applies.

As with all things tax, the regulations are a little murky and hard to understand. So in this article, we’ll explain the fundamentals of the 24 month rule, when it applies, and what to do if you think it affects you.

Let’s dive in.

The HMRC 24 month rule

The 24 month rule is a specific condition that lets you claim travel expenses for trips between your home and your client’s offices or a “temporary workplace”. The idea behind it is that visiting a client’s workspace - as opposed to your own HQ - requires special travel and can lead to undue costs.

This travel should not be part of your standard commute; HMRC sees travel to a temporary workplace to be a business expense, unlike commuting.

The rule exists to help define what is (and isn’t) a temporary workplace. In order to set clear guidelines and limit abuse of this tax exemption, HMRC created a (relatively) simple test to figure out whether a site is temporary or not.

Put simply: if the conditions of the 24 month rule are met, you’re dealing with a permanent workplace .

So what are those conditions?

How the 24 month rule works

The 24 month rule has two key conditions. In order for the rule to apply - and for a business to NOT be able to claim this travel expense - both of these must be met:

The employee must have spent or be likely to spend more than 40% of their working time at a workplace , AND;

They must attend it or be likely to attend it over a period lasting more than 24 months .

If you meet both of these criteria, you cannot claim tax relief on your travel expenses to and from a workspace. In other words, if you spend 40% of your time in an office or onsite for more than 24 months, this is a permanent place of work .

Important extras to factor in

Here are a few key considerations to keep in mind as you apply for tax relief:

As soon as you become aware that a contract will last longer than 24 months , you must stop claiming relief. So if you know on day one that this will be a two-year contract, you’ll never be able to claim.

24 months is the total calendar period in question, and not the actual amount of time you spend working with a client. So if you work two days a week with them starting January 1, or if you work six months on and then six months off, you’ll reach 24 months on January 1 two years from now. This is the case even if you sign new contracts along the way .

The 40% rule (above) applies, however. So a 15-month break (60% of any two-year period) would be enough to ensure that the 24 month rule doesn’t apply.

If the length of the contract is unclear, you can claim tax relief if it’s assumed that the agreement won’t last 24 months or more.

It’s possible to have more than one permanent workplace. If the 24 month rule is met, the workplace is permanent, even if the rule can also be met in other workplaces.

Tax relief is not available for private travel . That is travel to any place that an employee doesn’t need to be for work purposes.

Examples from HMRC

HMRC itself has published a very helpful (but very long) guide to employee travel . In its section on the 24 month rule, you’ll find good examples to illustrate the rules:

As Chris’ attendance at the temporary workplace in Wigan is expected to last less than 24 months, tax relief is available for the full cost of her travel between home and the temporary workplace.

Duncan has worked for his employer in Sheffield for 10 years and is sent to help out at the employer’s Rotherham branch for 28 months. There is no tax relief for the cost of travel to and from the workplace. This is because he will be spending more than 40% of his working time there and his attendance is known from the outset to be for more than 24 months so the workplace is a permanent workplace. His home to work travel is therefore ordinary commuting for which no relief is available.

Richard has worked for his employer for 3 years. He is sent to perform full-time duties at a workplace for 18 months. After 10 months the posting is extended to 28 months. Tax relief is available for the full cost of travel to and from the workplace during the first 10 months (while his attendance is expected to be for less than 24 months), but not after that (once his attendance is expected to exceed 24 months).

Sarah has worked for her employer for 7 years and is sent to perform full-time duties at a workplace for 28 months. After 10 months the posting is shortened to 18 months. No tax relief is available for the cost of travel to and from the workplace during the first 10 months (while her attendance is expected to exceed 24 months), but tax relief is available for the full cost of travel during the final 8 months (once her attendance is no longer expected to exceed 24 months).

The HMRC guide contains plenty more excellent examples - read chapter 3!

What is a travel expense?

Remember, the 24 month rule prevents employees from receiving tax relief on travel expenses related to temporary workplaces. That means, in order to claim such relief, you need to actually have incurred travel expenses.

We’ve already written a guide to defining reimbursable expenses for employees . But in this case, we’re talking more about expenses that are not reimbursed by an employer.

To help, here’s a breakdown:

Travel expenses in the UK

Travel expenses for employees are tax-deductible when certain conditions are met, for example:

The employee personally pays their own expenses without reimbursement from their employer;

The employer reimburses travel expenses paid for by the employee;

The employer pays the costs directly on the employee’s behalf;

The cost is met by vouchers, e.g. travel tickets, or credit tokens are provided to the employee; or

The travel facilities, such as accommodation, are provided directly to the employee.

Travel expenses include not only the actual cost of the business journey but all other associated costs, such as food and accommodation, toll fees, car parking and vehicle hire charges.

Manage travel expenses the smarter way

Manoeuvring HMRC's 24 month rule, mileage rates, and trivial benefits (as just a few examples) takes practice, patience, and know-how. But keeping track of your team's travel costs and receipts only requires good tools.

Spendesk makes on-the-go expenses simple, and our smart cards and even smarter software are best-in-class. Learn more about how we fix company spending here .

And if you're not quite ready for that, here's a great (free!) guide to help you manage travel expenses on your next work trip, near or far:

More articles dealing with HMRC's rules and regulations:

How HMRC meal allowance rates work

HMRC mileage allowance: How to manage employee car travel

What is a valid proof of purchase for business expenses?

e-Receipts: How to store digital receipts for your business expenses

How HMRC advisory fuel rates work for UK businesses

HMRC Employment Allowance 2023: the rules & how to claim

How to claim HMRC research & development (R&D) tax credits easily

The 6 best finance newsletters to subscribe to right now

CFO trends 2024: 6 insights & priorities for a bumper business year

3 surprising qualities and skills of successful accountants

Get started with spendesk.

Close the books 4x faster , collect over 95% of receipts on time , and get 100% visibility over company spending.

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Employment Income Manual

Eim32075 - travel expenses: travel for necessary attendance: definitions: temporary workplace, section 339(3) itepa 2003.

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.

Limited duration is explained at EIM32080 .

Temporary purpose is explained at EIM32150 .

If a workplace is capable of being a temporary workplace by reference to this rule, you must consider the following additional rules:

the 24 month rule, see EIM32080
the fixed term appointment rule, see EIM32125
the depots and bases rule, see EIM32160
the area rule, see EIM32190

These rules can only apply if the workplace is capable of being a temporary workplace by reference to S339(3).

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Business travelers should check out these deductions before hitting the road

What to know about tax deductions for business travel

Business travel deductions are available for certain people who travel away from their home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day's work and they need to sleep in a location other than their home to meet the demands of their work while away.

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment is less than one year.

Travel expenses for conventions are deductible if attending them benefits the business. There are special rules for conventions held outside of North America.

Deductible travel expenses include:

Travel by plane, train, bus or car between home and a business destination
Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location
Shipping of baggage and sample or display material between regular and temporary work locations
Using a personally owned car for business
Lodging and meals
Dry cleaning and laundry
Business calls and communication
Tips paid for services related to any of these expenses
Other similar ordinary and necessary expenses related to the business travel

Taxpayers can find more about the rules for travel deductions with Publication 463, Travel, Gift, and Car Expenses.

Self-employed individuals or farmers with travel deductions

Self-employed people can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
Farmers can deduct travel expenses on Schedule F (Form 1040), Profit or Loss From Farming .

Travel deductions for Armed Forces reservists

Members of a reserve component of the Armed Forces of the United States can claim a deduction for unreimbursed travel expenses paid during the performance of their duty. These travel expenses must be for travel more than 100 miles away from their home.

Recordkeeping is important

It's easier to prepare a tax return with organized records . Taxpayers should keep records such as receipts, canceled checks and other documents that support a deduction.

Subscribe to IRS Tax Tips

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COMMENTS

Publication 463 (2023), Travel, Gift, and Car Expenses
Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area. ... Transportation expenses don't include expenses you have while traveling away from home overnight. Those expenses are travel expenses discussed in ...
Tax issues arise when employers pay employee business travel expenses
In this event, the key question is whether the employee's tax home moves to the temporary workplace. If the tax home moves to the temporary workplace, the travel expenses between the employee's residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee because they are personal ...
Temporary Work Locations & Commuting Expenses Tax Deductions
The IRS defines a temporary work location as a work location expected to last for less than a year. For example, an employee's or contractor's commute between their home and regular work location is not a deductible business expense. Daily round-trip commute expenses are tax-deductible, regardless of the distance, if the work location is ...
Can You Claim Travel From Home to Work As a Tax Deduction?
Driving from your office to a temporary workplace or meeting with clients is also deductible. If you use a home office as your primary place of business, that rule applies too; driving from home to consult with your client is a legit deduction. References. Writer Bio. The list of deductible business expenses doesn't include your work/home commute.
What is a Tax Home, and How Does it Impact Travel Expenses?
The IRS defines a tax home as the city or general area where someone's main place of business or work is located. If your client travels away from their tax home for work purposes, their travel expenses may be deductible. "May be deductible" has taken on new meaning since the Tax Cuts and Jobs Act was passed in late 2017.
Deductions for Temporary Out-of-Town Work Assignments
The general rule for out-of-town business travel expenses is that you can deduct them as long as the work assignment is "temporary." (This includes transportation to and from a work site, lodging, 50 percent of meal costs, and so forth.) On the other hand, if the work assignment is not temporary, your tax home is considered to….
How to Get a Tax Break for Temporary Work Assignments
Let's take a closer look. Basic rules: If your assignment or job away from your main place of work is temporary, your tax home doesn't change. You're considered to be away from home for the ...
Can I claim commuting expenses for a temporary job assignment?
You can also claim commuting expenses to and from a temporary work site, regardless of location, as long as your main workplace is elsewhere. Temporary work location. If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the ...
Ordinary commuting and private travel (490: Chapter 3)
3.2. The term 'ordinary commuting' means any travel between a permanent workplace and: home. any other place which is not a workplace. A workplace is a place where the employee's attendance ...
The rules on travel and subsistence: a long and winding road
If the workplace is not temporary in the first place (as it does not meet the definition laid out in the Employment Income Manual at EIM32075), the workplace would already be treated as a permanent workplace. Travel to or from a temporary workplace and an employee's home is generally treated as business rather than private travel; and so tax ...
HMRC Travel Expenses & Temporary Workplace Rules
The general rule is that travel expenses between an employee's home and workplace are not allowable under HMRC rules, while expenses for travel between the employee's home and a temporary workplace may be allowable, providing certain conditions are satisfied. In this guide for employers, we outline HMRC's rules on claiming tax relief for ...
How to navigate employee travel expenses
No expenses for travelling to and from work. If an employer reimburses an employee for what HMRC call "ordinary commuting" both the employer and employee will have more money to pay over to HMRC in tax. Ordinary commuting, according to HMRC, is any travel between a permanent workplace and home, or any other place which is not a workplace.
EIM32080
Section 339(5) and (6) ITEPA 2003. As explained in EIM32075, a workplace that an employee attends for the purpose of performing a task of limited duration or for some other temporary purpose is a ...
Working from home during the virus. What travel expenses might ...
Below we look at the normal rules for claiming tax relief on travel expenses first and then at how these might be applied in the unusual times of the coronavirus pandemic. ... As the places you are travelling to are 'temporary workplaces' then travel from home to a temporary workplace is usually allowable anyway, notwithstanding the current ...
EIM32065
A temporary workplace is somewhere the employee goes only to perform a task of limited duration or for a temporary purpose. The cost of travel to a temporary workplace is deductible. For the ...
Here's what taxpayers need to know about business related travel
Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year. Travel expenses for conventions are deductible if attendance benefits the business and there are special rules for conventions held outside North America. Deductible travel expenses while away from home ...
Spendesk
The 24 month rule is a specific condition that lets you claim travel expenses for trips between your home and your client's offices or a "temporary workplace". The idea behind it is that visiting a client's workspace - as opposed to your own HQ - requires special travel and can lead to undue costs.
Claim tax relief for your job expenses: Travel and overnight expenses
Travel and overnight expenses. If you have to travel for your work you may be able to claim tax relief on the cost or money you've spent on food or overnight expenses. You cannot claim for ...
EIM32075
Section 339(3) ITEPA 2003. A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose.
Business travelers should check out these deductions before hitting the
Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment is less than one year. Travel expenses for conventions are deductible if attending them benefits the business. There are special rules for conventions held outside of North America. Deductible travel expenses include: