It is often the little niggly things that irritate businesses during a review by HM Revenue & Customs (HMRC). That celebratory round of drinks claimed on expenses, that appraisal meeting over a light lunch, that unembroidered shirt available for private use; all identified and taxed by the Inspector. But one issue which tends to stick in people’s throats more than any other is the Revenue’s stance on late night taxis home for employees. The legislation was seen as being both unfair and also a little vague. After a lot of prompting by the hospitality sector, HMRC agreed to review matters and provide some clarity and certainty for businesses.
The results of this review are now published and, yes, the Revenue has cleared up some of the contentious issues. But this has been done by tightening the definition of which journeys are allowable to such an extent that most people will now find it impossible to meet the conditions for exemption, which in any event only permitted a maximum of 60 tax-free taxis per year.
The relevant legislation is at s248 ITEPA 2003 and it lays down three conditions, all of which must be met. These have not changed, but what has is the Revenue’s guidance on their interpretation of the words in s248.
The first condition is that the employee is required to work later than usual, and this must be after 9.00pm. The second element is a simple question of fact, but it is the first which causes the problem. If you are employed in a bar or restaurant and your working hours are, say, 6.00pm until midnight, then even though it is after 9.00pm, you will not qualify as it is your normal working day. Likewise, if your job is as a barman in a hotel and you are required to work until the last customer goes to bed, then that is also a standard working day. However, the pattern of work must also be considered. If an employee is required to work until midnight, but in reality regularly stays until 1.00am, then that is also considered standard, and the exemption will not apply. Also the exemption is specifically for taxis home, so hotel breakfast staff who have to travel in to work at 5.00am will never qualify for exemption.
Secondly the late working must occur “irregularly”, which is not the same as infrequently. HMRC provide a specific example of an employee who stays late once a month to complete the payroll; this is considered to be regular, as the payroll is operated once every month. Presumably this will also catch employees who work late with functions in the run up to Christmas; Christmas comes, as we all know, every December 25th. Annual audit? Again, a regular occurrence….you’re getting the picture here. In reality the test that must be considered is whether or not the late working was planned and foreseeable, or whether it was unforeseen. If unforeseen, then that will meet the new, stricter definition.
The third condition is that public transport must have ceased, or else it would be unreasonable to expect an employee to use the available public transport. Now whilst London is a 24 hour city, it does not have a 24 hour public transport system, unless you consider night buses a safe and reliable method of getting home (and assuming you live near a night bus route). Again, HMRC defines those things not considered as reasons for exemption, to include a journey alone in the dark (walking alone through a dark and deserted area at 2.00am in the morning sounds pretty unreasonable to me), travelling to an unmanned station, carrying a heavy load, a less frequent timetabled service, and the like. An employee’s perception of their own personal safety is specifically stated not to be a qualifying reason. So a young employee, possibly female, who has left work at midnight, gets the last train back to an unmanned station, and then faces a walk home in a poorly-lit part of London with a record of assaults and muggings cannot be put in a taxi without a tax cost.
So what is considered an unreasonable public transport journey? One which takes more than an hour longer than usual once started. This will, therefore, exclude any time spent waiting at a station because the service is perhaps hourly after midnight rather than every 20 minutes. HMRC believes (and says) that an employee should be aware of the timetable and plan their journey accordingly.
And finally, not forgetting that limit of 60 tax-free taxis per year. Anything in excess is taxable even if all of the conditions are met. Additionally, the onus is on the business to demonstrate from its records that every single paid for or reimbursed journey meets all of the conditions.
Many employers will find this a shameless and disgraceful way of raising a few pounds by HMRC. In an age when we hear every day of robberies, muggings, assaults and the like, it cannot be right that those employees who work until the early hours in hospitality businesses, for the enjoyment and convenience of the rest of society, face a tax charge on getting home safely.
For futher information please contact Peter Davies, Manager, Investigations and Enquiries on 020 7549 2497 or complete and submit the online form below.