Insights

There are often times when an employer needs an employee to temporarily work from a location other than their usual permanent location. Depending on where that is, the costs involved can be quite significant and are usually paid for by the employer.

What are the tax implications?

Normally, travel costs that are paid for by an employee in this situation can be reimbursed tax-free by the employer. Any costs that are not reimbursed are usually eligible for tax relief for the employee who has incurred them. In these cases, travel costs include actual journey costs and also subsistence and accommodation costs for the period of the secondment.

Example: You have a company based in Guildford; your employee lives in Kingston and commutes to the office every day. Then, a client project based in Manchester requires him to be based there 5 days a week for 6 months. Rather than pay for a hotel every day, it is more cost effective to rent a flat for his use. This cost is allowed as part of the ‘travel costs’ accommodation allowance. The employee lives in rented accommodation and he decides to give up his flat in Kingston to save the rent and make alternative arrangements for the weekend. This is acceptable according to HMRC and he can claim all the costs and live rent free for the period without any tax liabilities.

Generally, these rules only apply for secondments that last for 2 years or less, after which time the employee must return to their original place of work. This is important to understand from the outset; if there is not going to be a job to go back to, the tax relief rules will not apply.

Allowable expenses for a secondment are not the same if an employee moves to take up a new role with a new employer, even if it’s a subsidiary company of their original employer. For instance, an employee of a US company comes to the UK to take up employment with a UK subsidiary for a year, with a view to subsequently returning home and resuming US employment. As the subsidiary company is classified as a separate entity and therefore a new employer, the reliefs won’t apply.

If the individual continues to be employed by the US parent throughout by classifying the move as a secondment to the UK (even though he is directed and physically paid by the UK subsidiary), relief should (subject to all the other conditions) be available. This can be a complex arrangement to structure but is very important to get right, since large amounts of tax relief may be at stake.