1.Background

Revenue has examined a number of cases involving the provision of the services of an individual to an end-user through an intermediary. Typically, the intermediary used in such circumstances is a company. In some cases the company may be controlled by the individual and/or persons connected with him/her. In other cases it may not.

The intermediary enters into a contract, either directly with the end-user or via an agency, under which it agrees to supply the services of the individual. There is no written contract between the individual and the end-user. An assumption underlying the type of arrangements referred to above is that the individual is not an employee of the end-user. While this may be true in the generality of cases, it cannot be automatically assumed. The facts of each case will determine whether there is an implied contract of employment between the individual and the end-user.

One recurring issue in the cases examined to date has been the tax treatment of various expenses of travel and subsistence. The purpose of this article is to clarify the circumstances in which expenses of travel and subsistence may be reimbursed free of tax.

2. Travel and Subsistence Expenses - existing guidance

A payment in respect of expenses which is not otherwise chargeable to income tax as income is treated as a perquisite of the office or employment by virtue of the provisions of Section 117 Taxes Consolidation Act 1997. Any such payment by an employer to a director or employee is within the scope of the PAYE/USC systems of deduction at source. Notwithstanding this, Revenue accepts that expenses of travel and subsistence may be reimbursed free of tax in certain circumstances. Revenue's practice in relation to tax–free reimbursement of expenses of travel and subsistence is set out in detail in Statement of Practice SP IT/02/2007 and Revenue Leaflets IT 51 and IT 54.

The key paragraphs of Statement of Practice SP IT/02/2007 that must be considered where the services of an individual are provided via an intermediary are paragraphs 2.3 and 2.6 which are reproduced below.

Paragraph 2.3

“It is a long established principle of tax case law that the expenses of travelling from home to work and work to home are expenses of travelling which are NOT necessarily incurred by an office holder or employee in the performance of the duties of his/her office or employment.

If an office holder or employee receives expense payments in respect of travelling to and from work, such expense payments are taxable and subject to PAYE deductions.”

Paragraph 2.6

“Where an office holder or employee, in the performance of the duties of his/her office or employment, begins a business journey directly from home or returns directly to home, then the expenses of travel and subsistence that may be reimbursed without deduction of tax are the lesser of those incurred on the journey between -

1. home and the temporary work location; or
2. the normal place of work and the temporary work location.”

Revenue's practice as set out above is supported by case law, which clearly indicates that the necessity to incur travel expenses must be imposed

• by the duties of the office or employment itself rather than by the personal circumstances of the office holder or employee, and
• on every person holding that office or employment regardless of the holder's personal circumstances or where he or she lives.

The examples set out in part 4 of this article are intended to illustrate the circumstances in which Revenue is prepared to accept that expenses of travel and subsistence may be reimbursed free of tax using the Civil Service schedule of rates. However, nothing in this article should be taken as limiting an individual's right to make a claim, under the provisions of Section 114 Taxes Consolidation Act 1997, for a deduction for the actual allowable expenses incurred. Where the employee decides to make such claims, any reimbursement of expenses by the employer, including any flat rate allowances, is regarded as pay and taxed accordingly.

3. Applying the guidance in the case of intermediaries.

3.1 In most cases, the normal place of work of an employee/director of an intermediary will be the premises of the intermediary's client. In many cases, the contract may specify fixed working hours at that premises or the nature of the work requires attendance at the premises, regardless of whether this is specified in the contract. Revenue does not accept that the location at which the administration of the intermediary is carried out and its books kept (whether this is at the registered office of the intermediary or at the director's home) constitutes a normal place of work of the director/employee.

Travel expenses incurred by a director/employee on the journey from his/her home to his/her normal place of work (and vice versa) do not qualify for a statutory deduction under Schedule E and may not be reimbursed free of tax. The rationale for this is that the necessity to incur the expense of travelling to or from home is imposed by the individual's personal circumstances and not by the duties of the office or employment and would not be imposed on every individual holding that office or employment.

3.2 The fact that an intermediary may undertake a series of short term contracts does not alter the position set out in paragraph 3.1 viz. the director/employee's home or the intermediary's registered office does not become a normal place of work of the director/employee of the intermediary. It follows that the cost of travel from home to the premises of the intermediary's client may not be reimbursed free of tax.

3.3 An intermediary may undertake a number of contracts contemporaneously. In such situations, the deductibility of travel expenses depends on the purpose of each journey. In all cases, the cost of travel from home to the first client premises and the cost of travel back to home from any of the clients’ premises may not be reimbursed free of tax. However, the cost of travel between client premises may be reimbursed free of tax.

3.4 The contract between the intermediary and the client may require the employee/director of the intermediary to attend the client premises but also to travel daily to multiple client locations for a temporary purpose or to travel to other locations, for example, to carry out inspections or deal with customers of the client.

In such cases, Revenue will accept, in line with paragraph 3.1 that the client's premises is the individual's normal place of work. The guidance in paragraph 4.2 of Statement of Practice IT/2/07 may be applied accordingly.

3.5 Sections 886 and 886A of the Taxes Consolidation Act 1997 impose statutory obligations in relation to the keeping of records. Paragraph 1.4 of Statement of Practice SP IT/02/2007 and Revenue Leaflets IT 51 and IT 54 specify obligations in the context of the reimbursement by employers of expenses of travel and subsistence free of tax to employees or directors. In the absence of adequate records and relevant supporting documentation, expenses of travel and subsistence may not be reimbursed free of tax to employees or directors.

4. Examples

Example 1

Emma is a director of a company with a contract to provide computer programming services to A Ltd which runs a payroll service for its clients. Her normal place of work is located at A Ltd's headquarters. From time to time she brings work home with her rather than staying late at A Ltd's premises. The expenses of travel and subsistence incurred on the return journey between Emma's normal place of work and home may not be reimbursed free of tax even on the occasions when she brings work home with her.

Example 2

From time to time Emma is required to travel from her normal place of work to customers of A Ltd to assist them in implementing revised payroll packages. The expenses of travel and subsistence incurred on the return journey between her normal place of work and the customer's premises may be reimbursed free of tax.

Example 3

From time to time when Emma is required to visit customers of A Ltd, she travels to them directly from home. The expenses which may be reimbursed free of tax are the lesser of those incurred on the journey between her home and the customer's premises and those incurred on the journey between her normal place of work and the customer's premises.

Example 4

Dermot is a director of a company with a contract to provide electrical services to BE Ltd. The contract involves multiple daily appointments with various customers of BE Ltd.

In this scenario, Dermot holds a “travelling appointment” as described in paragraph 4.2 of Statement of Practice SP IT/02/2007 and the premises of BE Ltd will be treated as his normal place of work.

The expenses of travel and subsistence incurred by Dermot in travelling from his home to the premises of BE Ltd may not be reimbursed free of tax. However, expenses of travel and subsistence incurred by Dermot travelling from the premises of BE Ltd to the customers of BE Ltd may be reimbursed free of tax.

Where a business journey commences from Dermot's home or Dermot returns directly to home from the premises of a customer, then the expenses that may be reimbursed without deduction of tax are the lesser of those incurred on the journey between:-

1. home and the customer's premises and
2. the employer's base (normal place of work) and the customer's premises.

Example 5

Deirdre is a director of a company with a contract to provide advertising services to GH Ltd. Up to December 2012, she worked at the premises of GH Ltd but GH Ltd now allows her to work from home and she attends the premises of GH Ltd every Friday to provide work updates and discuss projects. The expenses of travel and subsistence incurred on the return journey each Friday between Deirdre's home and the premises of GH Ltd may not be reimbursed free of tax.

Example 6

Kevin is a director of a company with a number of contracts to provide weekly health and safety advice to A Ltd, B Ltd and C Ltd to ensure that these companies comply with the appropriate Health and Safety legislation. Under these contracts, Kevin is required to work Mondays and Tuesdays with A Ltd, Wednesdays and Thursdays with B Ltd and Fridays with C Ltd.

The expenses of travel and subsistence incurred by Kevin on the return journey from his home to A Ltd, B Ltd and C Ltd may not be reimbursed free of tax. On each day Kevin is merely travelling from his home to his normal place of work and vice versa.

Example 7

Kevin's work pattern changes. He is now required to spend Monday and Tuesday mornings with A Ltd before travelling to B Ltd where he works on Tuesday afternoon and Wednesday. He spends Thursday and Friday with C Ltd. The expenses of travel and subsistence incurred on the journey between A Ltd and B Ltd only may be reimbursed free of tax.

Example 8

Alison is a director of a company with three engineering contracts. On most days she works from home by choice. Once a month she takes a day out to attend the premises of the three clients to discuss issues arising on the engineering contracts.

The travel and subsistence expenses incurred by Alison on the journey from her home to the first call and from the last call to her home may not be reimbursed free of tax. They are not expenses which are necessarily incurred “in the performance of the duties” of the office or employment. However, the travel and subsistence expenses necessarily incurred by Alison in travelling between clients’ premises may be reimbursed free of tax.

Example 9

Adam is a director of a company. Throughout the tax year 2012 the company won three contracts with three different clients to install heavy duty electrical equipment at three different premises. Adam spent 2 months, 6 months and 4 months respectively in the year 2012 at the 3 different premises installing the equipment.

The expenses of travel incurred by Adam on the return journey from his home to the various premises and any expenses of living away from home may not be reimbursed free of tax.

Source: Revenue Commissioners. www.revenue.ie. Copyright Acknowledged