Employee Travel & Subsistence

EMPLOYEE TRAVEL AND SUBSISTENCE

A CONSULTATIVE DOCUMENT

Comments would be welcome on the proposals in this document.

They should be sent to:-

Mark Nellthorp
Inland Revenue
Personal Tax Division
West Wing
Somerset House
Strand
LONDON
WC2R 1LB

by 30 September 1996.

Comments can be sent by e-mail to: ptd@gtnet.gov.uk or you can use the Comments Form at the end of the document.

Chapter 1 Introduction

Chapter 2 The Current Position

Chapter 3 Proposals for Change

Chapter 4 Other Approaches

Chapter 5 Other Issues

Chapter 6 The Consultation Process

Appendix 1 Draft Legislation

Appendix 2 Commentary on Draft Legislation

Appendix 3 Effect of the Proposals - Illustrative Examples

Comments Form

1. INTRODUCTION

1.1 Under the Schedule E expenses rule, a deduction for tax is, in general terms, available for travel expenses - but only if they are necessarily incurred by the employee in the performance of his or her duties. This long standing test has been strictly interpreted by the Courts.

1.2 A key feature of the tax treatment of expenditure on travel is that no deduction is available for the costs of travelling between an employee's home and normal place of work. The Courts have held that such travel is undertaken to put the employee in a position to perform his or her duties, rather than in the performance of those duties. So there is no deduction under the terms of the existing legislation. The proposals in this consultative document do not alter that basic rule. The proposed changes address two particular issues where the current rules can cause difficulties - travel to and from work by 'site-based employees' and the treatment of, what is known as, 'triangular travel'.

1.3 Site-based employees have no permanent place of work. Typically, they spend a period working in one place and then move on to work somewhere else. Each site at which they work is, for the time they are there, their normal place of work. In general, therefore, they get no deduction for any of the costs of travel between home and each of the sites where they work, nor for the costs of subsistence while they are there. Many see this as unduly harsh.

1.4 Triangular travel occurs where an employee with a normal place of work travels not between home and that normal place of work but directly between home and a temporary workplace. The Revenue's approach to the costs of such journeys is intended to give relief for the business element of the journey, without generally including the costs of home to work travel. Although this approach is more generous than a strict interpretation of the law might require, it is often criticised because of the administrative burden it puts on employers and is generally viewed as being inequitable.

1.5 Before describing the proposals for tackling these issues it is necessary to explain the current treatment of travel expenses in general. This is set out in Chapter 2. Chapter 3 then explains the proposed changes. This is supported by Appendix 1 which contains the text of draft legislation, Appendix 2 which provides a commentary on the legislative text and Appendix 3 which illustrates the practical effect of the proposed changes. Chapter 4 briefly summarises alternative approaches which were considered but not pursued. Chapter 5 addresses associated issues. Finally, Chapter 6 outlines the consultation process.

2. THE CURRENT POSITION

2.1.1 The tax treatment of expenses and benefits is set out in Booklet 480 "Expenses and Benefits a Tax Guide" - available free from any Inland Revenue office. The following paragraphs summarise current practice with respect to expenditure on travel and subsistence.

2.2 Schedule E Expenses Rule - Section 198(1)

2.2.1 The Schedule E expenses rule determines the allowability for tax purposes of expenditure by employees out of their emoluments. It is also applied in calculating the amount of any tax charge on vouchers and credit tokens (Sections 141 and 142 ICTA 1988) as well as benefits in kind provided to employees paid at a rate of £8,500 per year and certain directors (Section 154 ICTA 1988). The definition of 'business travel' for the purposes of car and van benefits (Section 168 ICTA 1988) mirrors the wording of the travel rule in Section 198.

2.2.2 The main provision allowing relief for expenses under Schedule E is Section 198(1) of the Income and Corporation Taxes Act (ICTA) 1988. This consultative document is concerned primarily with the first limb of that rule. It allows a deduction from the emoluments which are to be taxed, where the employee or office holder is necessarily obliged to incur and defray out of the emoluments of the office or employment the expenses of travelling in the performance of the duties.

Section 198(1)
Income and Corporation Taxes Act 1988

If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments of that office or employment the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform those duties, or otherwise to expend money wholly, exclusively and necessarily in the performance of those duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.

2.3 'Holder of an Office or Employment'

2.3.1 The legislation refers to expenses incurred by the holder of an office or employment (rather than to expenses of any holder or a holder). This means that the qualifying tests are applied to the general requirements of the job itself - rather than to the circumstances or preferences of any particular individual doing it.

2.4 'Necessarily Obliged'

2.4.1 To satisfy the 'necessity test', it is not enough that an expense is unavoidable. The expense must inevitably stem from the requirements of the job, not from the personal circumstances of the employee. The fact that an employer encourages or requires an employee to incur a particular expense is not conclusive evidence that it is necessarily incurred. As the decisions of the Courts have brought out, the 'necessity test' will, in strictness, be satisfied if (and only if) each person holding the job would have to incur expenditure on the same tasks - though not necessarily expenditure of the same quantum or kind (e.g. one holder may travel by car and another by train).

2.5 'In the Performance of the Duties'

2.5.1 Strictly, to be deductible, an expense must be incurred in the actual discharge of the duties of the job. It is not sufficient that the expense is simply relevant to, or incurred in connection with, the duties of the job. Nor will an expense be deductible if it merely puts the employee in a position to start work.

2.6 'Incur'

2.6.1 A deduction can be given only if, and to the extent that, an expense has actually been incurred. For example, where an employee receives a payment to cover hotel accommodation while away on business but chooses to save money by sleeping in his or her car, there would be no deduction to set against the emolument as no expense has been incurred.

2.7 'Defray out of the Emoluments'

2.7.1 A deduction can be given only if an expense has been defrayed out of the emoluments of the relevant office or employment. If, for a year of assessment, there are insufficient emoluments from the particular office or employment in respect of which the expense is claimed, no deduction can be given against any other income (including income from other offices or employments).

2.8 Means and Quantum

2.8.1 The 'necessity test' is applied to the journey rather than to the level of expense incurred. So, if a journey qualifies as necessary then the entire expense incurred in undertaking that journey is assumed to qualify (provided it is not unduly lavish). For example, the Revenue would be most unlikely to query first class rail travel on the grounds that only standard class was necessary to travel from A to B. Similarly, a journey does not need to be by the shortest route if another route is more appropriate - for example, using the M25 to go around London rather than driving through the middle.

2.9 Travel from 'Home' to 'Normal Place of Work'

2.9.1 The Courts have established as a clear general principle that the cost of an employee's travel between home and a normal place of work is not deductible. Such expenditure merely puts the employee in a position to perform the duties of the job. It is not incurred in actually doing the job. Furthermore, the journey depends on where the employee lives. The expense is not an expense of a journey that every holder of the job would have to undertake.

2.10 Emergency Call Out Expenses - Employee on Stand-By

2.10.1 The fact that an employee is on stand-by, or may be called out to work as and when required, does not in itself affect the treatment of travelling expenses on journeys between home and a normal place of work.

2.11 Travel between Places of Work

2.11.1 Where someone has two employments, the duties of which are at different places, the cost of travelling between them is not usually deductible.

2.11.2 Where, however, an employee is required by his duties to travel between two places of work in the same employment, the travel may be necessary and in the performance of those duties - with a deduction available for the expense incurred. For a place to be a place of work, the employee should be able to show that he is required to perform substantive duties there.

2.13.1 An Extra Statutory Concession (ESC A4) provides a deduction for travel costs between companies in the same group by an individual who is a director of each of those companies (or someone who is an employee of one of the companies and a director of the other).

ESC A4 (a)

A director (whether whole or part time) of two or more companies within a group of parent and subsidiary or associated companies, whether or not entitled to separate remuneration from each of the companies of which he is a director, is regarded as having one place at which he normally acts as a director of companies within the group, and is entitled to a deduction (or a notice of nil liability under s166(1), (2) ICTA 1988) for expenses necessarily incurred in travelling within the United Kingdom from that place to other places on the business of the group in the course of his duties as a director. The same principle is applied to an individual who is an employee of one company and a director of another company within the same group of companies. (By "associated company" is meant a company on whose board the group is represented because of the group's shareholding or other financial interest.)

2.12 'Triangular Travel'

2.12.1 'Triangular travel' occurs where an employee with a normal place of work travels not between home and that normal place of work but between home and another place at which he is required to perform the duties of his employment. What differentiates triangular travel is that the travel is direct between home and the temporary workplace. The journey need not actually be 'triangular'. The employee might, for example, leave home and make a business trip in the opposite direction to his normal place of work or on an occasion simply break his normal, daily journey into work by stopping off on business along his normal route.

2.12.2 In the case of triangular travel, the employee may claim a deduction of the lesser of the cost of:

the actual journey between home and the temporary work place and
a journey between the normal place of work and the temporary place of work.

EXAMPLE 1

Example 1A

An employee usually commutes by car from home in Oxford to a normal place of work in London. A daily round trip of 114 miles.

On a particular day, the employee instead drives from home in Oxford to a temporary place of work in Cambridge. A round trip of 162 miles.

A deduction is available for the cost of a theoretical journey between the normal place of work and the temporary place of work. A round trip of 106 miles.

2.12.3 A strict interpretation of the law would treat the home to temporary place of work journey as 'home to work' travel and so allow no deduction in such cases. The 'lesser of' rule provides a pragmatic approach to recognising the business element of such travel, without generally including the costs of home to work travel.

2.12.4 An employee may be required to work temporarily at a place other than his normal place of work for a considerable period of time. Where this happens, the Revenue will allow the employee to claim a deduction for travel expenses based on the 'lesser of' rule, subject to certain restrictions.

2.12.5 The employee can be regarded as temporarily absent from his normal place of work provided:

the absence is not expected to, and does not in fact, exceed 12 months and
the employee returns to his normal place of work at the end of it.

2.12.6 If these conditions are not satisfied, no deduction for travel expenses is due. However, where:

an employee is initially expected to be absent from the normal place of work for a period of up to 12 months before returning to the normal place of work and
circumstances change during the period and it becomes known that the absence from the normal place of work will exceed 12 months,

the employee may be allowed a deduction for the travel expenses up to the date when the change of circumstances became known.

2.13 Home as a Place of Work

2.13.1 Where it is an objective requirement of the duties of the employment that the employee must work at home, the cost of travel from home to other places of work may be allowable. In practice, however, few employees are able to show that their home is, in a real sense, a place of work. It is not enough for an employee merely to carry out some aspect of his duties there. Usually this is a matter of personal choice rather than reflecting objective requirements of the job. Normally the employer will provide the facilities necessary for the work to be carried out at the business premises. Even if the holder of an office or employment has to do part of his work at home, the place where he resides is generally still his personal choice - so the journey between home and another place of work is no more or less in the performance of duties than a similar journey by someone who does no work at home, with no deduction available.

2.14 'Travelling Appointments'

2.14.1 For some employees travelling is an integral part of their job. They are performing their duties from the moment they leave home. Such employees hold what is termed a 'travelling appointment' and can obtain a deduction for travelling expenses - even for those legs of a journey which start or finish at home.

2.14.2 A typical 'travelling appointee' might be a commercial traveller. He or she has no 'normal place of work' and is travelling on the job, as distinct from travelling to it, the moment he or she leaves home. Another example might be a service engineer who moves about from place to place during the day carrying out repairs to domestic appliances at clients' premises.

2.14.3 Where, in contrast, an employee has to travel to fulfil duties but also tends to report (and work) at a particular office each day (e.g. a service engineer operating on call out from a permanent base), then travel between home and that office will not be allowable. That said, if a travelling appointee makes calls at an employer's office that are fortuitous or incidental, the business journeys to and from home will remain allowable.

2.14.4 Many jobs require 'mobility' - the employee perhaps having to work at a number of different places from week to week or month to month. However, this does not mean that the duties themselves inherently involve travelling - merely that the employee will not always incur the same cost in getting to (or staying near) work. Clearly, the frequency with which such changes take place is a major factor. There will be a strong presumption that anyone who:

has no normal place of work and
is required to go to a number of different sites each day on an irregular basis

will have a travelling appointment. However, other factors also need to be taken into account - such as the nature of the work itself.

2.15 'Site-Based' Employees

2.15.1 There is no definition of a 'site-based' employee in statute. The type of employee under consideration here:

works at a succession of places as part of the same employment (not different employments) - spending a few days, weeks or months at each,
has no permanent normal place (or places) of work with that employer and
does not hold a travelling appointment.

Examples might include certain computer consultants, relief staff and safety or security inspectors.

2.15.2 For such employees, the Courts have held that the costs of travelling between home and any of the places where he or she works do not satisfy the 'in performance of duties' test and, therefore, no deduction is available.

2.16 Subsistence

2.16.1 The Revenue's practice is to regard travelling expenses as covering associated subsistence expenditure (for example, on meals and accommodation) where they form a part of the costs of making a journey. Subsistence costs are, thus, treated as part of travelling expenses, qualifying (or not qualifying) for a deduction on the same terms as travel costs.

2.17 Dispensations

2.17.1 To avoid the submission of details of routine expenses payments that would clearly involve no extra tax liability, an employer may apply to the Inspector of Taxes for a 'dispensation' (Section 166 ICTA 1988). A dispensation may be agreed where the Inspector is satisfied that expenses paid, and benefits provided, would be fully covered by a deduction. Where a dispensation is given, the employer need not report those particular payments or benefits at the end of the year and the employee need not show them in his or her income tax return.

2.17.2 Dispensations may be given for payments of travel expenses (including subsistence) on an approved scale for business travel. Dispensations are not given for 'round sum' expenses allowances or where the effect would be to provide relief where none would otherwise be available.

2.18 Working Rule Agreements

2.18.1 These agreements, drawn up between employers' federations and trade unions, establish the terms and conditions of about ¾ million employees within the construction and allied industries. The Inland Revenue plays no part in negotiating the agreements but for many years has agreed that certain, relatively modest, travel and lodging allowances provided under them may be paid tax free. The justification for this treatment has been that such arrangements provide a considerable administrative saving by avoiding a multiplicity of expenses claims in circumstances where the payments would anyway have been deductible.

2.19 International Business Travel

2.19.1 Relief may be available for certain travel expenses under special rules (Sections 193 and 194 ICTA 1988) where work is performed outside the UK by employees who are resident and ordinarily resident in this country. The treatment differs depending upon whether the duties are performed wholly abroad or partly abroad. Similarly, relief may be due for certain travel expenses of employees who are not domiciled in the UK (Section 195 ICTA 1988).

3. PROPOSALS FOR CHANGE

3.1 Aims

3.1.1 The main aims underlying the proposals contained in the draft legislation are:

to give relief for travel expenses incurred by site-based employees as a result of their employment and
to make more equitable and less complex the tax treatment of triangular travel.

To enhance clarity and certainty, the draft legislation incorporates those aspects of the present treatment of travel expenses which are based upon case law and long standing concessionary practice. It is emphasised, however, that this is not intended to tighten the rules but to make them easier to understand and apply.

3.1.2 It is estimated that the Exchequer effect of the proposed changes would be broadly revenue neutral.

3.2 Site-based employees

3.2.1 The tax treatment of travel between home and work generally follows from the law which says that only travel which is objectively needed in actually doing the job is allowable. A useful test of this is whether or not anyone doing the job would need to undertake that particular journey. Different people living in different places would have different home to work travel. That is a product, not of the job, but of where they live.

3.2.2 The working pattern of many site-based employees, with the place where they normally work changing frequently, may be such that travel between home and work is more a product of the nature of their employment than of where they live. Even so, under current rules, no relief is available for the home to work travel of the site-based employee.

3.2.3 Under the proposals in this consultative document, the rules on the deductibility of travel expenses would be changed to allow relief for travel by site-based employees. To achieve this, new rules would allow a deduction for the costs of travel to or from any place where attendance at that place is in the performance of the duties of a person's employment. To maintain the status quo for ordinary travel between home and an employee's normal place of work, there would be an exclusion from relief for the costs of 'normal commuting'.

3.3 Triangular travel

3.3.1 The issue here is that these journeys are, to an extent, the product of where someone lives in relation to their normal place of work. Logically, relief should be available for part of the cost of the journey or, more precisely, the full cost of the business part of the journey. However, any system which involves calculating partial relief carries with it a significant compliance cost. Until now, the Revenue's approach has been the pragmatic solution of the 'lesser of' rule explained in paragraph 2.12.2. Relief is calculated on the basis of the travel costs incurred or the costs that would have been incurred if the journey to the temporary place of work had started and finished at the normal place of work, whichever is the smaller.

3.3.2 There are various drawbacks to the 'lesser of' rule. Arguably, the approach is inequitable because, depending on the arrangements made, some travellers profit from the rule while others cannot obtain full relief for the out of pocket expense they actually incur. Those whose costs of normal commuting are incurred on a journey by journey basis, most notably car drivers, can benefit significantly from the existing rules. This is illustrated in Example 2 below.

EXAMPLE 2.

Example 2

An employee usually commutes by car between home in Southampton and a normal place of work in London. A daily round trip of 152 miles.

On a particular day, the employee instead drives from home in Southampton to a temporary place of work in Brighton. A round trip of 124 miles. Saving the cost of 28 miles travel on a normal daily commute.

Despite making a net saving on the day's travelling. A deduction is available for the cost of a theoretical journey between the normal place of work and the temporary place of work. A round trip of 106 miles.

3.3.3 People who are able to realise savings on their normal daily commuting when they undertake an alternative journey benefit under the 'lesser of' rule. For such travellers, every journey made directly between home and a temporary workplace qualifies for a deduction on an amount in excess of the extra cost actually incurred. This is because, in determining the level of expenses to be relieved, no account is taken of the saving made on the normal cost of commuting.

3.3.4 The situation is different for season ticket holders. They tend to lose out under the 'lesser of' rule. About half the journeys made between home and a temporary place of work might be expected to qualify for a tax deduction on only the lower cost of the journey between the normal and temporary places of work. Season ticket holders tend to make no saving when they do not make their usual journey to work. However, in cases where the current rules limit the deduction to the cost of the theoretical journey, this will always be less than the out of pocket expenses actually incurred in travelling directly between home and the temporary place of work.

EXAMPLE 3.

Example 3

An employee usually commutes by rail using an annual season ticket, between home in Cambridge and a normal place of work in London. A daily round trip of 106 miles.

On a particular day, the employee instead drives from home in Cambridge to a temporary place of work in Bristol. A round trip of 296 miles.

Driving the 238 mile round trip between the normal place of work and the temporary place of work would have cost less. A journey by train and taxi would potentially have been cheaper still.

Under the 'lesser of' rule, a deduction is available for the cost of the theoretical journey only. So the employee will get a deduction for an amount less than the cost actually incurred. There is no saving on the normal cost of commuting.

3.3.5 In addition, operating the 'lesser of' rule is burdensome. For example, in the cases illustrated in Examples 2 and 3, to determine the extent of relief available, it is necessary to record details of the journey actually undertaken, to decide how a theoretical journey between the normal and temporary place of work might have been undertaken, to cost that theoretical journey and to compare the cost of the theoretical journey with the cost of the journey actually undertaken. This process has to be repeated each time a new destination is visited.

3.3.6 Various alternative approaches have been considered and discussed with some employers' representatives. The change proposed is that relief should be given for the 'additional cost' of triangular travel. That is to say, a deduction should be available for the net additional cost an employee incurs as a consequence of undertaking a particular qualifying journey. Any saving the employee realises through not undertaking normal commuting would be off-set against the gross costs of travel between home and the temporary workplace. The following examples show how this would work in practice.

EXAMPLE 4.

Example 4

An employee usually commutes by car between home in York and a normal place of work in Leeds. A daily round trip of 48 miles.

On a particular day, the employee instead drives from home in York to a temporary place of work in Nottingham. A round trip of 174 miles.

The additional cost here is the cost of the additional travel undertaken. (174-48 or 126 miles) A deduction would be available for that amount.

Under existing rules, relief would be available for the cost of the theoretical round trip of 152 miles between Leeds and Nottingham.

EXAMPLE 5.

Example 5

An employee usually commutes by rail, using an annual season ticket, between home in Shrewsbury and a normal place of work in Birmingham. A daily round trip of 94 miles.

On a particular day, the employee instead drives from home in Shrewsbury to a temporary place of work in Sheffield. A round trip of 166 miles.

There is no saving on the costs of normal commuting. So, under 'additional cost' rules, relief would be available on the unadjusted cost of this 166 mile journey.

Under existing rules, relief would be available for the cost of the theoretical round trip (of 156 miles) between Birmingham and Sheffield.

3.3.7 Under this 'additional cost' approach, the effect of the proposed legislation is to allow relief for the extra costs necessarily incurred. Each employee, no matter what their normal mode of transport, would get relief for the additional costs they incur travelling in the performance of their duties - no more and no less.

3.3.8 The 'additional cost' approach is also less burdensome than operating the 'lesser of' rule. The expectation is that employers would maintain a record of the cost of normal home to work travel of employees who travel as part of their duties. This standard amount would simply be off-set against gross costs each time a journey is undertaken. Though some record keeping would still be necessary, it should be much less burdensome (for all concerned) than the 'lesser of' rule which requires calculation of the costs of an imaginary journey every time a new destination is visited. In informal discussions about the 'additional cost' approach, employers have confirmed that there would be worthwhile administrative savings from such a change.

3.4 Calculating the Saving on Daily Travel

3.4.1 The amount to be deducted in respect of any saving on the normal daily home to work travel costs would be the amount actually saved or, if appropriate in the case of season tickets, refunded. Where the normal daily home to work travel is undertaken by car, it will only be necessary to record the relevant mileage and off-set that against the mileage covered travelling between home and a temporary place of work (as in Example 4) before the additional journey is costed. This approach ensures private and business mileage are costed on the same terms. The standard off-set would remain the same for each journey undertaken - having to be updated only when costs change (for example, when the employee moves home).

3.4.2 Where, as in Example 5, an employee is unable to realise a saving on normal commuting, there is no amount to be off-set - so no adjustment would need to be made or record of normal commuting costs kept. Obvious examples are where normal commuting is by season ticket or on foot. This will apply also in cases where an employer pays for the costs of normal commuting - say by the provision of free fuel for private travel in a company car. Here there is no saving to the employee through not commuting - and, therefore, no off-set. In contrast, where an employee receives a taxable allowance for home to work travel, say a lump sum payment of £5,000 a year for use of a car, there will be a saving realised if normal commuting is not undertaken on a particular day. In this case, there would be an off-set.

3.4.3 Although the proposed approach offers administrative savings, there will inevitably be some cases where the 'additional cost' approach is more difficult. For example, where an employee varies the mode of home to work travel - say travelling by car, bus or bicycle depending on whim and the weather. The daily cost of travel here is less easy to fix - but the Revenue will be happy to agree any reasonable method of costing. This might be a weighted average, an 'in normal circumstances' approach, or even a pattern-based approach (e.g. cycling on Fridays or walking in the summer). It should be straightforward for such issues to be agreed locally through discussions with the appropriate Inspector. The aim would be to minimise administrative burdens as much as possible, even in these one off cases.

3.5 The Horse

3.5.1 The existing Schedule E expenses rule includes specific provision for the cost of keeping and maintaining a horse to enable the duties of employment to be performed. This special deduction is a product of another time. There now seems no need for a horse to be treated more favourably than, say, a bicycle. While revising Section 198, the opportunity is being taken to modernise this aspect of the rules. Of course, under the general rules, a deduction will still be available for the costs of travel by horse in the performance of duties. So, subject to the response to the proposals, a trusty friend can now be put out to well deserved pasture.

3.6 Temporary Detached Duty

3.6.1 The existing '12 month' rule (see paragraphs 2.12.5 & 6) requires that employees must return to their normal place of work for a post to be considered temporary. In some circumstances, an employee will go on to a different permanent place of work - for example, where the employee is on detached duty prior to a permanent transfer to another location. In other cases, there will be no place to return to - say where a new appointee has a temporary posting prior to a permanent attachment being finalised. It is proposed, therefore, that the requirement to return to the normal place of work be removed - this travel thus being dealt with on the same basis as the travel of site-based employees.

3.7 Groups of Companies

3.7.1 The first leg of ESC A4 (text at paragraph 2.11.3) gives extra-statutory relief for the cost of travel by directors between companies within a group. There is a case for putting this part of the concession on a legislative basis. However, the relief as it stands appears discriminatory. To the extent that there is an argument that corporate structure should not determine the deductibility of expenses, that argument applies equally to the expenses of directors and employees. Under the proposed changes this concession would be extended to cover all employees and office-holders travelling between group companies.

4. OTHER APPROACHES

4.1 General Relief for Home to Work Travel

4.1.1 It is sometimes argued that there should be relief for normal commuting - on the grounds that all the costs of earning a living should be deductible. However, such travel may have a large element of personal choice and be the consequence of a decision on where to live in relation to one's place of work. Manifestly, some jobs require some home to work travel (for example, those working at a nuclear power station may have little scope for 'living over the shop') but there is generally a large element of personal choice as to how far people live from work.

4.1.2 In practical terms, the cost of giving a deduction for travel between home and a normal place of work would, even before any behavioural effects were taken into account, run into £billions. The funding of such a relief would require substantial tax increases elsewhere.

4.1.3 For these reasons, successive Governments have ruled out tax relief for the cost of travel between home and a normal permanent place of work.

4.2 Site-Based Employees

4.2.1 The proposals contained in the draft legislation provide full relief for the costs of travel for site-based employees. Though arguably generous in some cases, this approach does reflect the view that for most site-based employees travel is more a product of the job than their choice of where to live.

4.2.2 Other possible approaches would involve limiting relief in some way. Such limitation could take several forms, for example restricting:

the coverage of the relief (e.g. classifying certain employments only as site-based)
the type of journey qualifying (e.g. only those involving an overnight stay)
the extent of the journey relieved (e.g. up to 25 miles or only that beyond 25 miles)
the extent of the cost relieved (e.g. up to £25 or only that in excess of £25)
the number of journeys deductible (e.g. the first 25 or any 25)
the overall extent of relief (i.e. a ceiling on the annual claimable amount)

4.2.3 Each of these options introduces complexity and each seems arbitrary. Also, there would inevitably be unfairness as restrictions bit harder for some than others. Though any of these approaches would still permit some relief, and at reduced Exchequer cost, the conclusion is that it is better to relieve the costs actually incurred - i.e. the additional costs of undertaking the journey.

4.3 Triangular Travel

4.3.1 An alternative approach here would be to give relief for the total cost of journeys between home and a temporary place of work. This would be the least administratively burdensome approach - except, of course, for no relief at all. Also, season ticket holders would not lose out in the way they do now.

4.3.2 However, it would mean that, to an even greater extent than under the current 'lesser of' rule, those making savings on their normal commuting would profit from the fact that no account would be taken of those savings in determining the level of relief. This cost to the Exchequer would have to be met from tax increases elsewhere.

4.3.3 As with site-based employees, there are variations on the theme of total cost relief (limiting the relief available in some way - say by giving relief for the total cost of journeys but only where they are in excess of 50 miles). Again these would introduce complexity and arbitrariness.

4.4 The Twelve Month Rule

4.4.1 Clearly, there are many other options here. The essential point is to differentiate between what is and is not 'temporary' detached duty. The message from both employees and employers is that the most important consideration is certainty - and certainty at the time payments are made (rather than being based upon retrospective tests). To provide that certainty, some sort of cut off is necessary. Wherever that cut off falls, someone will find themselves just the wrong side of the line. The current twelve month rule is well understood and easily remembered. There does not seem to be a strong case for increasing or decreasing it.

5. OTHER ISSUES

5.1 Subsistence

5.1.1 The current treatment of subsistence costs is, to some extent, concessionary. Based on case law, a deduction should be available only for the extra subsistence costs associated with qualifying travel. However, the Revenue's practice is to give relief for the total costs. It is proposed to put this practice onto a firmer footing, to provide relief for all subsistence associated with qualifying travel. Savings on the normal cost of subsistence (e.g. the cost of the meal an employee would have eaten at home had he or she not been away on business) will not be off-set against the costs of subsistence while travelling. However, the travel and associated subsistence costs will be aggregated and the off-set for savings on normal commuting will count against subsistence to the extent that it exceeds the cost of travel - as illustrated in Example 6 below.

EXAMPLE 6

An employee normally drives to and from work, the daily round trip costing £15. One week the employee supervises the installation of equipment at a client's site. The employee drives to the site and stays in a nearby hotel for four nights. The journeys cost £30 each way and the subsistence costs amount to £50 a night.

The £75 saving on the costs of normal commuting should be off-set against the total travel and subsistence costs of £260. Leaving an available deduction of £185.

There should be no off-set for savings on normal subsistence costs.

5.2 Dispensations

5.2.1 The extent to which the 'lesser of' rules differ from commercial practice currently limits the attractiveness to employers of dispensations. It is anticipated that the introduction of new rules for triangular travel, both more equitable and less burdensome to administer, will encourage the wider use of dispensations to cover travel expenses. Discussions with employers suggest that they would be more inclined to align their own expenses rules with the tax treatment if it were based on relief for additional costs. In this way there should be no difficulty in a dispensation being obtained - further reducing the burdens on all concerned.

5.3 Working Rule Agreements

5.3.1 These agreements are geared to the particular circumstances of site-based employees in the construction and allied industries - see section 2.18. They provide a framework for, amongst other things, the making of various payments in respect of travelling and subsistence. With changing work practices, it now seems likely that many such expenses payments might not be deductible under the general expenses rules with the result that the tax treatment of working rule agreements is, at least in part, concessionary. The proposed changes to the treatment of site-based employees generally will make this much less the case and it is possible that , as employees gain experience of the proposed new statutory reliefs, employer-specific dispensations might gradually take the place of the existing industry-wide arrangements. The Inland Revenue have no proposals at present to change the tax treatment of working rule agreements - but they may wish to review the position in due course, when any new reliefs have bedded-in.

5.4 International Business Travel

5.4.1 The special rules relating to international business travel in Sections 193, 194 and195 ICTA 1988 are unaffected by the proposed changes to Section 198.

5.5 National Insurance Contributions

5.5.1 The intention is that, as far as is possible, the rules with respect to NICs will be amended to reflect these changes to the Schedule E expenses rules.

5.6 Simplification

5.6.1 The new legislation is not simple. This is hardly surprising given the wide variety of circumstances which the new rules have to provide for if they are to be effective in delivering the new relief for these very specific aspects of home to work travel. Moreover, it is proposed that the principles from the relevant case law and Revenue practice should now be built into the legislation. Although the proposed changes will, if implemented, make the legislation significantly longer, preliminary discussions with employers suggest that the rules as a whole should be easier to understand and apply.

5.6.2 The Government is committed to rewriting Inland Revenue primary legislation to make it easier to understand and to use - but at this stage it does not have a blueprint for this process. That can only be developed following consultation that is to take place later this year. Once the general approach has been established in the light of consultation, it will in due course be applied to the Schedule E provisions, as to all other parts of the Inland Revenue tax code.

5.6.3 When the Schedule E provisions are rewritten, the starting point on the expenses rule will be whatever legislation emerges from this exercise. In the meantime, the new legislation proposed in this document, like any change which amends, or otherwise has to fit in with, the existing tax code, must itself adopt broadly the same style and language as existing legislation.

6. CONSULTATION PROCESS

6.1 The legislative package proposed in this Consultative Document addresses concerns increasingly raised by employers and employees alike. The proposed changes have been developed in discussion with a wide range of representative bodies and in the light of comments from individual employers. The effect of the changes would be wide ranging and, as has been explained, some people would lose by them. However, the overall effect is both fairer between employees using different modes of transport and easier to operate than the present system. Ministers have said, however, that they would introduce the necessary legislation only if the proposals command general support. Comments are invited from all interested parties on the proposed package of changes.

6.2 Comments should be sent to:-

Mark Nellthorp
Inland Revenue
Personal Tax Division
West Wing
Somerset House
Strand
LONDON
WC2R 1LB

The deadline for comments is 30 September 1996.

6.3 Comments can be sent by e-mail to: ptd@gtnet.gov.uk or you can use the Comments Form at the end of the document.

6.4 The intention is to produce a report on the outcome of this consultation process. Where responses are of a commercially sensitive nature, or for other reasons not for publication, this should be made clear. All such requests will be respected.

APPENDIX 1

DRAFT LEGISLATION

.-(1) For subsection (1) of section 198 of the Taxes Act 1988 (relief for necessary expenses) there shall be substituted the following subsections-

"(1) If the holder of an office or employment is obliged to incur and defray out of the emoluments of that office or employment-

(a) any amount necessarily expended on travelling in the performance of the duties of the office or employment,

(b) any other expenses of travelling which are not expenses of ordinary commuting but are attributable to the attendance of the holder of the office or employment at any place on an occasion when his attendance at that place is in the performance of the duties of the office or employment, or

(c) any amount not comprised in expenses falling within paragraph (a) or (b) above but expended wholly, exclusively and necessarily in the performance of the duties of the office or employment,

then (subject to subsection (1A) below) there may be deducted from the emoluments to be assessed the amount which is so incurred and defrayed.

(1A) Where-

(a) any person holding an office or employment undertakes any travelling the expenses of which fall within paragraph (a) or (b) of subsection (1) above, and

(b) in consequence of his doing so, he does not incur expenses of ordinary commuting which it is likely he would have incurred had he not undertaken that travelling,

the amount (if any) which is deductible under subsection (1) above in respect of that travelling, or in respect of expenses incurred as mentioned in paragraph (c) of that subsection in connection with that travelling, shall be reduced by the amount of the expenses of ordinary commuting that have been saved."

(2) After section 198 of that Act there shall be inserted the following section-

"Interpretation of s. 198.

198A.-(1) For the purposes of section 198 and this section ordinary commuting, in relation to the holder of an office or employment, is-

(a) travelling, in either direction, between a permanent workplace of his and a place mentioned in subsection (4) below (including any travel via another place so mentioned); or

(b) travelling between two places in a case where, because of the proximity of one place to another, the journey in question is, for practical purposes, the same as a journey which would constitute ordinary commuting by virtue of paragraph (a) above.

(2) For the purposes of section 198 and this section a place is a permanent workplace, in relation to the holder of an office or employment, if-

(a) it is a place which he regularly attends in the performance of the duties of the office or employment and otherwise than for the purpose of performing a task of limited duration or for some other temporary purpose; and

(b) it is not a place falling within subsection (4)(a) below.

(3) The holder of an office or employment who does not have a permanent workplace apart from this subsection but is a person who-

(a) in the performance of the duties of the office or employment, attends different places within a particular area, and

(b) performs his duties at places in that area because his duties (except so far as requiring his attendance at places outside that area for the purpose of carrying out tasks of limited duration or for other temporary purposes) are defined by reference to that area,

shall be deemed for the purposes of section 198 and this section to have a permanent workplace comprising the whole area.

(4) The places referred to in subsection (1) above, in relation to the holder of an office or employment, are-

(a) his home or any other place which he uses, otherwise than in the performance of the duties of that office or employment, as a permanent or temporary place of residence,

(b) any place that he is visiting for social or personal reasons and otherwise than in the performance of the duties of that office or employment,

(c) any place that he attends, otherwise than in the performance of the duties of that office or employment, for the purposes of any trade, profession or vocation carried on by him, and

(d) any place that he attends in the performance of the duties of another office or employment held by him.

(5) For the purposes of this section attendance for limited purposes at-

(a) a place which forms the base from which a person works in performance of the duties of his office or employment, or

(b) the place at which he is allocated the tasks that he is to carry out in the performance of those duties,

shall not be taken to involve attendance at that place to perform a task of limited duration or for a temporary purpose.

(6) For the purposes of this section, where on any occasion a person attends any place in the performance of the duties of any office or employment or performs those duties within a particular area-

(a) the tasks which he carries out on that occasion at that place, or within that area, shall not be taken to be tasks of limited duration, and

(b) the purposes for which, on that occasion, he attends that place or performs duties within that area shall not be taken to be temporary purposes,

if subsection (7) below applies to the place or area as respects that occasion.

(7) This subsection applies to a place or area as respects any occasion on which a task is carried out, or duties are performed, by a person holding an office or employment if-

(a) the task is carried out, or the duties are performed-

(i) in the course of a period of continuous work at that place or within that area; or

(ii) at a time which it would be reasonable, on that occasion, to assume will be included in such a period;

and

(b) the period of continuous work is one of which more than twelve months has expired before that occasion or is one which it would be reasonable, on that occasion, to assume will in due course be either-

(i) a period of more than twelve months; or

(ii) a period comprising all or almost all of the period for which the person holding the office or employment is likely to continue to hold it after that occasion.

(8) The reference in subsection (7) above to a period of continuous work at a place or within an area is (subject to subsection (9) below) a reference to any continuous period throughout which the duties of the office or employment in question fall to be performed wholly or mainly at that place or, as the case may be, within that area.

(9) For the purposes of subsection (8) above any actual or contemplated modification of the place at which, or of the area within which, the duties of any office or employment fall to be performed shall be disregarded unless it is such that it has had, or would have, a significant effect on the expenses of any travel by the person holding the office or employment to or from the place or area where those duties fall wholly or mainly to be performed.

(10) For the purposes of this section, where a person holds any office or employment with a company, the reference in subsection (4)(d) above to another office or employment does not, in relation to that office or employment, include a reference to an office or employment with another company in the same group of companies.

(11) For the purposes of subsection (10) above companies shall be taken to be members of the same group if, and only if, one of them is a 75 per cent. subsidiary of the other or they are both 75 per cent. subsidiaries of a third company."

(3) In subsections (5) and (5A) of section 168 (meaning of business travel), for paragraph (c) there shall be substituted, in each case, the following paragraph-

"(c) "business travel", in relation to any employee, means any travelling the expenses of which, if incurred out of the emoluments of his employment, would be deductible under section 198;".

(4) This section has effect for the year 1997-98 and subsequent years of assessment.

APPENDIX 2

COMMENTARY ON DRAFT LEGISLATION

Subsection (1) of the main text substitutes new wording for that currently forming subsection (1) of section 198 ICTA.
Within the text to be inserted, subsection 198(1) largely recreates the existing section 198(1) rules. There has been some restructuring to enhance clarity.
Subsection 198(1)(a) allows a deduction for necessary expenditure on travel in the performance of duties i.e. that which would qualify for a deduction under a strict interpretation of the first leg of the current section 198(1).
Subsection 198(1)(b) is a new provision allowing a deduction for the expenses of other travel to or from any place which an employee has to attend in the performance of his duties. The costs of this travel would not qualify for a deduction under a strict interpretation of the first leg of the current section 198(1) - but in practice some costs get relief under the 'lesser of' rule. Subsection 198(1)(b) excludes from the new relief any travel classified as ordinary commuting (see subsection 198A(1) below).
Subsection 198(1)(c) reinstates the existing section 198 relief for other (i.e. non-travel) expenses incurred wholly, exclusively and necessarily in the performance of duties.
The current section 198 relief for the costs of maintaining a horse is not reinstated. However, the cost of travel undertaken by horse, or any other form of transport, remains deductible if the tests of subsection 198(1)(a) or (1)(b) are met.
Under the revised wording for non-travel expenses, the holder of an office or employment who is "obliged to incur and defray .... any amount wholly, exclusively and necessarily in the performance of ..." can deduct the amount "so incurred and defrayed". Under the existing wording of Section 198(1) the holder of an office or employment "necessarily obliged to incur and defray .... money wholly, exclusively and necessarily in the performance of ..." can deduct the amount "so necessarily incurred and defrayed". This streamlining, cutting back from a triple necessarily to a single necessarily (from double to single on travel), is intended to make the legislation clearer and easier to understand. Beyond this, the change has no practical consequence. The necessarily test is not in any way altered by this change - in particular, it is not relaxed.
Subsection 198(1A) introduces the concept of relief being available only for the 'additional cost' element of any expenditure on travel. Subsection 198(1A) restricts the amount deductible in respect of travelling and subsistence under subsection 198(1) to that amount in excess of 'savings' on the cost of ordinary commuting (see subsection 198A(1) below) as a result of undertaking the particular journey. Subsection 198(1A)(a) links this specifically to travel expenses. Subsection 198(1A)(b) specifies that such 'savings' are those expenses of ordinary commuting not incurred, which would have been incurred but for the undertaking of the journey in question.
Savings on expenditure which is not a cost of ordinary commuting, (for example meals that would otherwise have been eaten at home) are not required to be off-set against any deduction available under the new subsection 198(1). However, savings on the costs of ordinary commuting which are set against a deduction can be set against any deduction connected with the relevant travelling, including any element under the new subsection 198(1)(c).
Those who make no personal saving on the costs of their ordinary commuting (including season ticket holders and those who do not pay the expenses of ordinary commuting) make no off-set.
Subsection (2) of the main text introduces a new section 198A. This defines terms and sets parameters. Much of its length is a consequence of legislating existing case law and practice.
Subsection 198A(1) defines the term ordinary commuting. The term is deployed in subsection 198(1)(b), where the expenses of ordinary commuting are excluded from relief, and in subsection 198(1A)(b), which specifies the expenses of ordinary commuting as the off-set in calculating the 'additional costs' of travel for which a deduction is available. Subsection 198A(1)(a) defines ordinary commuting as travel between a permanent workplace (defined in subsection 198A(2) - see below) and another place, as detailed in subsection 198A(4) (broadly, home or a place visited for non-work reasons or in the performance of the duties of another job).
Subsection 198A(1)(b) extends the definition of ordinary commuting to include journeys which are effectively identical to those that would constitute ordinary commuting. It means that such journeys are automatically excluded without the need to make a calculation under section 198(1A) - which would give a similar result, because the deduction for a journey identical to ordinary commuting would be restricted to an insignificant level by section 198(1A).
Subsection 198A(2) defines the term permanent workplace used to fix one end of the journey in the definition of ordinary commuting in subsection 198A(1)(a). Subsection 198A(2)(a) establishes the permanent workplace as a place "regularly" attended in the performance of duties - except where such attendance is "for the performance of a task of limited duration or other temporary purpose" (a phrase further developed in subsections 198A(6) and (7)).
Subsection 198A(2)(b) excludes home from the definition of a permanent workplace. Travel to and from home which would qualify for a deduction under the existing rules should still qualify for relief under the new subsection 198(1)(a).
Subsection 198A(3) concerns those who have no single normal place of work but who do have a normal area of work. For these people, attending different places within a particular area, that area is deemed to be their permanent workplace. Thus, travel between their home (or any other place referred to in subsection 198(A)(4)) and that permanent workplace will count as ordinary commuting. So, for example, a travelling salesman responsible for Hampshire but living in Kent would not get a deduction for the cost of his travel from home to Hampshire. Similarly, a campus based employee, say a security guard responsible for several Inland Revenue Head Office buildings within a few hundred yards of each other, would not get a deduction for the cost of home to work travel merely because he works in a number of different places.
Subsection 198A(4) completes the definition of ordinary commuting outlined in subsection 198A(1). Subsections 198A(2) and (3) define the permanent workplace which constitutes one end of the ordinary commuting - subsection 198A(4) deals with the other end of that journey.
Subsection 198A(4)(a) ensures that the costs of travel between home and a permanent workplace are excluded from deduction. The wording captures homes of all forms - including second homes, temporary homes, mobile homes, weekday flats near the office etc. Subsection 198A(4)(b) prevents a deduction for the trip between a permanent workplace and somewhere visited other than in the performance of the duties - for example, travel straight to work from a visit to parents. Subsection 198A(4)(c) prevents a Schedule E deduction for the cost of travel between a place of employment and a place attended in pursuit of a trade, profession or vocation (i.e. a place of self-employment). Subsection 198A(4)(d) rules out explicitly a deduction for the cost of travel between two different employments. Subsection 198A(4)(d) is, however, limited by subsection 198A(10) which does allow relief for travel between employments where the employing organisations are members of the same group.
Subsection 198A(5) concerns employees who routinely travel between home and a permanent workplace at the start and end of the day but then spend a limited period of time and perform few duties at that workplace. This group might include bus drivers and deliverymen. In these circumstances, attendance at the permanent workplace will not (in particular with regard to subsection 198A(2)(a)) be considered to be "for the purpose of performing a task of limited duration or for some other temporary purpose". Thus the travel between home and the permanent workplace will be regarded as ordinary commuting - with no deduction available for any expense incurred. Where, in contrast, visits to a particular workplace are merely fortuitous, that workplace will not necessarily be considered to be a permanent workplace and travel to and from it not necessarily ordinary commuting.
There is clearly a tax advantage in a journey not counting as ordinary commuting. Subsection 198A(2)(a) excludes from the definition of a permanent workplace any place which an employee attends "for the purpose of performing a task of limited duration or for some other temporary purpose". In pursuit of certainty, subsection 198A(6) states that these conditions will not be met in certain circumstances. These circumstances are further detailed in subsection 198A(7).
Subsection 198A(7)(a) refers to continuous attendance at a particular site. The intention is that prior attendance at a site should not preclude relief for travel to or from that site on some separate future occasion. For example, a consultant might work for a particular client for eight months, work elsewhere for other clients for ten months and then return to the first client and the original site for a different eight month project. The previous attendance at this client's site would not prevent the second period there qualifying as of limited duration. The meaning of the term 'continuous' is further explored in subsection 198A(7)(b).
Subsection 198A(7)(b)(i) gives a legislative basis to the existing '12 month rule' for detached duty (see paragraph 12.13.5). Effectively, it classifies as a permanent workplace any workplace attended for a continuous period in excess of 12 months or with the expectation that the total continuous period at that workplace will exceed 12 months.
Subsection 198A(7)(b)(ii) excludes from relief travel to or from workplaces associated with temporary employment where duties are performed at that workplace for the whole of that period of employment. This is aimed particularly at recurring temporary appointments.
Subsection 198A(8) defines a period of continuous work at a place as a continuous period throughout which the duties fall to be performed wholly or mainly at that place. So, for example, attendance need not be for 24 hours a day or seven days a week. Further, a brief performance of duties elsewhere will not necessarily render attendance at a site other than continuous. Also, someone with two part-time employments can be in continuous attendance at the site of each during the same period.
Subsection 198A(9) provides further clarification of the meaning of continuous attendance at a particular place. This subsection states that a changed place or area is not considered to be a different place or area unless that change has a significant impact on the cost of travel by the employee to that place. Thus an engineer working on a major road bridge is not considered to have a new workplace merely as a result of his responsibilities shifting from north shore to south shore.
Subsection 198A(10) puts onto a legislative basis the first leg of Extra Statutory Concession A4 and extends it to give a deduction for travel by anyone between employments or offices in two companies within a single group of companies.
Subsection 198A(11) sets out when companies will, for the purposes of subsection 198A(10), be considered to be part of the same group of companies.
Returning to the main text of the draft clause, subsection (3) links subsections (5) and (5A) of section 168 ICTA directly to section 198 ICTA for their definitions of 'business travel'. This updates their wording in line with the changes here - avoiding the need to quote at length. The new wording covers all travel within section 198(1) without any adjustment being made to reflect savings off-set under section 198(1A). So business travel is still business travel even if the cost of it is off-set by savings on normal commuting.
Subsection (4) gives effect to the change commencing with the tax year 1997/98 - there is no retrospective effect.

APPENDIX 3

CURRENT POSITION - ILLUSTRATIVE EXAMPLES

Mr Alpha lives in Dover. He is employed as a safety consultant. He has no normal place of work; he occasionally visits his employer's head office in London - but most of his time is spent at the various premises of his employer's clients. His job can take him anywhere in the UK. He usually spends between a week and several months at each site. He is what we call a 'site-based' employee. On a particular day he travels about 217 miles to a site near Gloucester where he will be staying for the rest of the week. His employer pays his travel and subsistence expenses (for the journeys and for his accommodation during the week) - on which sum he pays tax, the site counting as his normal place of work while he is there. Under the proposed new rules Mr Alpha would be able to claim a deduction for the cost of his travel and subsistence.

Ms Bravo works for the same company as Mr Alpha. She too lives in Dover, normally commuting by train (using a season ticket) to her job at the company's HQ in London. She too spends today at the Gloucester site. She drives there direct from Dover and back home again afterwards (a round trip of 434 miles), the costs of this being fully reimbursed by her employer - on which she pays tax. Under the current 'lesser-of' rule on triangular travel, she only gets a tax deduction only for the costs of the theoretical round trip from her normal office in London to Gloucester and back (about 210 miles, significantly less than the costs actually incurred). Under the proposed new rules, Ms Bravo would be able to claim a deduction for the 'additional cost' of the journey - in this case, the entire cost.

Mr Charlie is a neighbour of Mr Alpha's. He is a travelling salesman employed by a firm producing safety equipment. He is responsible for the whole of the south of England, this week he will be working in the Gloucester area. He will be staying there all week and calling on about twenty companies including the one at which Mr Alpha is working. Mr Charlie has a 'travelling appointment'. His employer reimburses the costs of his travel and subsistence - on which, being a travelling appointee, he pays no tax. This treatment would be unaffected by the proposed rule change.

Ms Delta is Mr Alpha's boss. She lives near Oxford. She commutes daily by car to her normal place of work at the company's HQ in London, although often she pays short visits (usually only a day or two) to clients' sites. Today she drives to spend the day with Mr Alpha and Ms Bravo at the site near Gloucester. She only has to travel about 55 miles each way, about the same distance as her daily commute. Today, however, the company will pay for her travelling expenses - on which she pays no tax. This is because under the 'lesser-of' rule on triangular travel Ms Delta can claim a deduction for the full cost of her journey from home to the site as it is less than the cost of travelling there from her normal place of work at the London office. Under the proposed new rules, Ms Delta would be able to claim a deduction only for the 'additional cost' of her journey over and above the cost of her normal journey to work in London.

Mr Echo works at the site Mr Alpha and the others are visiting. He works for the company which owns the site. He normally works at another of the company's sites, in Dover where he lives, but he is on six month's secondment at the Gloucester site. He commutes on a weekly basis. His employer reimburses his travel and subsistence costs - on which, being temporarily absent from his normal place of work, he pays no tax. This treatment would be unaffected by the proposed rule change.

In each of the cases above, the Inspector and the employer might negotiate a dispensation so that a formal claim by the employee would not be necessary for any deduction due.

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