You are sending an employee overseas for several months to complete a job. They have asked what the tax and NI position will be if they pay for family visits during this period. Head of Tax Christiaan Hansen looks at this in more detail.
You are probably aware that if you pay an employee’s travel costs to or from their normal workplace it counts as private and so is taxable pay or a benefit in kind, depending on how they meet the cost. But different rules apply if the normal workplace is outside the UK.
There are several exemptions which can apply to an employee’s journeys to and from their home when they are working abroad. Each exemption has a slightly different purpose. In respect of those who are a UK employer, here are the main ones that you need to know about are:
Starting and ending a job
The first exemption relates to the journeys at the start and end of an employment. For UK employers, two conditions must be met for the exemption to apply. Condition A – the duties of the job are performed wholly outside the United Kingdom; and condition B – the employee is a UK resident for tax purposes.
The second exemption applies in any of the following cases.
Case A is where the work is wholly outside the UK and:
• the employee is absent from the UK wholly and exclusively for work purposes
• the work can only be performed outside the UK; and
• the journey starts in the country where the work is and ends in the UK or vice versa.
Case B applies where the work is partly performed outside the UK and:
• it isn’t work on board a vessel
• the journey starts in the country where the work is and ends in the UK or vice versa
• the work can only be done outside the UK; and
• the journey is made wholly and exclusively for the purpose of the work or returning to the UK after it ends.
Case C is similar to case B, but applies where the work is carried out on board a vessel.
The exemption applies to the cost of travel for the whole journey, i.e. from where the employee is staying abroad and where they are staying in the UK (usually their home), not just the part of the journey between the borders of each country, For example it will cover the train and taxi fares getting to the rail station or airport as well as the flight or ferry fare.
A similar exemption is allowed for travel costs for visits by an employee’s immediate family (spouse/partner and children under 18). This exemption only applies if the employee is out of the UK for a continuous period of at least 60 days and the family member’s journey starts in the UK and ends in the vicinity of where the employee is, and is:
• to accompany the employee at the start of the overseas work; or
• to visit them while they are required to be abroad for work; and
• is for up to two outward and return journeys per tax year.
Where either of the exceptions apply, you can pay for or reimburse an employee their travel expenses tax and NI free. If they don’t meet the cost in full the employee can claim a tax deduction for the shortfall they pay for.
You can pay for an employee’s travel costs between their UK home and where they are staying abroad. If the work lasts for 60 or more days the same applies for the cost of travel for their immediate family to visit or stay with them. If you don’t reimburse or pay the full cost the employee can claim a tax deduction for the difference.
For further Tax advice and support please do contact Christiaan and the Tax Team.