Have work, will travel

A recent case sheds light on travel expenses for employees working away from home

This month’s column includes a round-up of some recent tax case Tribunal judgements of interest.

Paul Nowak v HRC (TC07307)

This case dealt with the much disputed and often misunderstood issue of travelling expenses for employees working away from their ‘normal’ place of work and site based employees who spend long periods of time working for one employer at one single site or working on different sites on a regular basis site. Whether or not the travel expenses and related subsistence and accommodation costs for working at such sites and especially getting there and back can be regarded as tax deductible rests on some fairly elderly statute and HMRC rules which are indeed of long standing but can cause significant problems in some cases as happened here.

Mr. Nowack lived in Pontefract but travelled regularly over the two year period in question to work at various nuclear powers stations across the UK. He had been working in such roles for a period which exceeded five years but was separately contracted by his main employer for his work at each power station on a temporary contract basis. HMRC formed the opinion that each temporary contract was a separate engagement and contract of employment which meant that the expenses to and from the site etc could not be claimed as tax deductible by Mr. Nowak as each site would then be regarded as a permanent workplace for Mr. Nowak and the expenses thus treated as within the definition of ‘ordinary commuting’ rendering them non-deductible.

The Tribunal agreed with HMRC’s view and decided that the payment of mileage allowances and other expenses by the employer to Mr. Nowak was not sufficient evidence by itself to demonstrate that these were temporary workplaces. The contracts required work at a specific location for each period of time as these were each sites which the employee “regularly attended in the performance of his duties” they could each be regarded as permanent workplaces.

This case is interesting for the light it sheds on the interpretation of ‘permanent workplace’. Whilst each contract here was only for a period of months the Tribunal seems to have attached a lot of importance to the fact that Mr. Nowak worked for the same employer over many years and took the view that as such he was really incurring the same “home to work” travel costs for each site that any other employee would have to incur on a daily basis. The decision is potentially controversial because it could mean that many individuals who travel on a regular basis to a number of different workplaces for their employer could now face similar problems with their travel expenses if their circumstances seem to resemble Mr Nowak’s.

IR 35 and HMRC attacks?

In a recent brief press statement HMRC appeared to confirm that it has no intention of using the advent of the “Off-Payroll Working “ rules extension to the private sector from April 2020 as a reason to commence enquiries into previous years for a large number of users of Personal Service Companies, (PSC), where their “Employer” reclassifies them as employees and treats them as liable to deduction of tax and NIC’s from April next year. Under the new extended version of IR35 a contractor who forms the opinion that their subcontractors using a PSC ought to be more correctly operating the IR35 rules will have to issues a “status determination” to the PSC user and thereafter from April 2020 deduct tax and NIC’s when making payments to the PSC. Some commentators had expressed concerns that HMRC might then use this reclassification as an opportunity to commence compliance check into the affairs of the PSC for earlier years before 2020/21 based on the end-users’ status determination and review. However it now appears that HMRC is not minded to do this. On the other hand the apparent issue by HMRC of about 1,500 letters to personal services companies who all subcontract to one major UK conglomerate company just recently, stating that in its opinion the relationship between their major customer and the PSC’s “ comes with in the off-payroll working rules” does little to dispel this disquiet among some professionals.

On the contrary it seems to indicate that there may well be examples which come to light of cases where HMRC thinks it could indeed be worthwhile commencing such broad brush compliance checks involving a large number of individual all working in the same circumstances.

Cheshire Cavity Storage et al V HMRC (2019) UKFTT 0498

What wealth of long-running experience the tax professional can recall when asked this question? How many cases are there now on the books which have dealt with this much vexed issue? How many of us wish that all those years ago, when capital allowances were first invented, the draftsman had just put in that tax reliefs would just be given for machinery and apparatus or equipment and had excluded the possibility that things which were or indeed which even just looked like buildings could ever qualify? Would that not have been so much easier? But oh no, he had to go and introduce us to the wonderful world of “plant” and thereby came many fascinating cases all devoted to the interpretation of this little word and which have given the tax profession so much fun (sic) over the ensuing decades.

The latest episode of this saga involved two connected companies making claims for allowances in respect of gas storage facilities in which the Tribunal decided that the storage facilities involved had a predominant and significant function which was mainly “premises like” and that of providing merely shelter and containment. This decision may seem rather surprising given what was being stored, and indeed I find it most unsatisfactory myself but who am I to argue.

What it does do is give us yet another example of how the borderline between what is plant and what is “just a building” can never be regarded as settled and will remain a long-running issue between HRMC and the tax profession.

I suppose it is possible that the advent of the new Structures and Buildings Allowance for which these facilities would have almost certainly qualified, might perhaps alleviate this problem over the longer term for very large businesses, where the timing difference inherent in the different types of tax relief might not be regarded as material; for smaller businesses such a difference can mean a lot of
deferred tax relief or perhaps none at all.