This article examines issues relevant for those employees sent to work in the UK by an employer based overseas. The examples below are drawn from those experiences.
Our UK secondment guide explains the approach to benefits and expenses paid to employees who are on secondments of periods less than 24 months.
Employees who attend a place of temporary employment for a period up to 24 months can claim relief for the cost of travel under Sections 338 and 339 ITEPA 2003 (see EIM32080). This relief may also include accommodation and subsistence costs associated with that workplace.
When enquiring about entitlement to relief of a non-domiciled employee, consider Section 373 ITEPA 2003 instead. EIM30052 concerns the interaction between Sections 338 and 373. There are illustrative examples at EIM35003.
How to identify “the employment” of an individual for the purposes of Section 338 and 339 ITEPA 2003
Where an employee’s workplace attendance comprises most or all of the period for which the employee holds the employment, it will not be considered a temporary workplace. The place of work does not determine who it is that employs that person. When an employee is sent to work at a different site for a period, consider whether this secondment constitutes the duties of a continuing employment, or whether it means they have taken up a different role.
The position will be straightforward in most cases: if an employment contract stipulates that the employee will be required to move from office to office for different periods during their employment, for example. There will, however, be cases where the position isn’t so clear-cut.
Whether a secondment becomes a new employment is determined case by case, taking into account a number of relevant factors.
Factors in favour of considering it a new employment would include:
- A new contract with a different employer
- Termination of the prior employment
- A major change in employment duties from the previous employer
Factors in favour of considering it a continuing employment include the continuation of rights under the existing contract of employment (pension, seniority rights or share scheme participation) and the same employer. For borderline cases, HMRC may need to obtain legal advice before making a decision.
UK secondment example 1
An accountant is employed by a French bank; he takes a post as HR Manager for a fixed 18 month period with his employer’s UK subsidiary in order to further his career. His contract in France is terminated and a new one is drawn up for the UK subsidiary who decides rates of pay and allowances. He expects and hopes that the French parent will re-employ him at the end of his period in the UK; however, he has no ongoing contractual rights.
Based on this, HMRC would determine that the accountant has an 18 month fixed term employment with a UK employer. His employment in France has terminated, and he has taken up new employment in the UK with the hope that his previous French employer will re-employ him when his fixed term employment in the UK ends.
UK secondment example 2
An employee of a company in Sweden is seconded to work at a UK subsidiary for a period of 14 months. The UK subsidiary pays her for the duration of her secondment, and at the same rate as she had been paid in Sweden; she also retains some rights with the original employer including pension scheme membership. Her time on secondment in the UK is relevant to her pension entitlement and seniority in Sweden.
Based on this, HMRC would determine that the employee has one employment and that secondment in the UK is a temporary workplace in the course of continuing employment in Sweden. There is a single contract of employment even though some of the obligations of the employer are met in part by a different company.
Duration of secondment
A workplace will be treated as temporary where it can be reasonably assumed that the employee’s attendance in the course of a continuing employment will not exceed 24 months. HMRC has a defined set of criteria that are to be taken into account when deciding whether it is a reasonable assumption that a particular secondment will be for not more than 24 months.
HMRC will look at each case and consider statements made both by the employee and the employer, the expected duration of the project to which the employee has been seconded, any agreements made between each of the relevant parties, and whether or not those agreements have been made in writing. They may also look in detail where a secondment exceeds 24 months and had been informed that it was not expected to do so.
Sometimes, there may be a change in the expected length of the secondment. The workplace will be temporary so long as it can be reasonably assumed that the secondment will not exceed 24 months. HMRC cannot conclude that a continuation of the secondment beyond 24 months in all cases will mean that the workplace was not temporary at some stage.
UK secondment example 3
A project manager who works for a French company is seconded to work in the UK on a project which is expected to last 3 years. The initial secondment is for 6 months, but it is expected that the secondment will be extended for the total duration of the project so long as his work is satisfactory. He has no reason to believe that his secondment will not be extended.
Based on this, HMRC would assume reasonably that he will work for the full three year duration of the project. His secondment is expected to last more than 24 months so the UK will not be a temporary workplace.
HMRC acknowledges that these circumstances could change in the future and affect the above conclusion. He might, for example, be seconded for a further 12 months at the end of the initial 6 months and informed that he will not be given a further secondment. If this happens, the UK site will be a temporary workplace for the extra 12 months. It may also come to light that the project will complete in under the expected 24 months. If this is the case, then, the UK site will be a temporary workplace from the time at which this state of affairs becomes clear.
The extra costs of business travel
Where an employee’s secondment is established to be to a temporary workplace, the cost of business travel associated with the secondment will for the duration also include his or her accommodation and subsistence costs. These must be attributable to the business travel in order to qualify for relief. This is because if it were not for the business travel, they would be additional to any costs the employee would incur.
Once it has been accepted that the employee has incurred additional costs in the duration of the secondment, there is no need to take account of what has been saved as a result of the business travel to determine the value of the relief. Where an employee chooses to eats in a restaurant on a business trip, relief can be claimed for the full value of the meal; no restriction is placed on the cost of the meal that the employee might otherwise have eaten at home.
HMRC offered further guidance on the example of “Millie” from paragraph 5.5 of Booklet 490. The example discusses itinerant employees – those who have no permanent home and must make their home wherever work happens to lead them. Employees who work on this basis cannot deduct accommodation and subsistence costs while working a particular location as there is no additional expense. The position of an individual seconded to a temporary place of work in the UK is different even when they do not keep accommodation in their home country. Accommodation in the UK is considered an additional expense.
UK secondment example 4
A German company seconds an employee to work in the UK for 15 months. He chooses to sell his home in Germany and rents accommodation in the UK so that he will need to find a new place to live on his return to Germany.
HMRC accepts that this individual renting property in the UK for the duration of his secondment is an additional cost and is therefore entitled to relief.
Living accommodation
Sometimes an employer may provide employees on secondment with furnished living accommodation, or a cash allowance for which they will fund living accommodation. HMRC permits relief for an appropriate hotel accommodation for the entire duration of the secondment. They also realise that the hotel quality can and will reflect the employee’s seniority.
Both furnished and unfurnished accommodation can sometimes be the cheaper option as well as more convenient than a hotel. Providing the cost of the accommodation is appropriate, reasonable and not excessive, HMRC will not place restrictions on the relief. This may include furniture costs when properly attributed to business travel. If it can be properly demonstrated that the accommodation cost is reasonable when compared to an appropriate standard of hotel accommodation, then full relief should be permitted. HMRC anticipates relief will be rarely restricted.
Relief may be restricted in cases where the standard of accommodation that an employee enjoys does not result from a need to provide that employee with accommodation necessary for the performance of his or her duties. A good example of this is where the accommodation is supplied for the employee and his or her family, or where the location of the accommodation is chosen for non-business reasons. Where this leads to an increase in the cost of the accommodation, there may be a restriction. Neither can it be assumed that accommodation provided of a standard that reflects what the employee is used to in his or her own country, will always be accepted as reasonable.
Where HMRC accepts that furnished or unfurnished accommodation is a reasonable alternative to a hotel, they will not typically restrict relief where the accommodation is available at weekends, for short holidays during the secondment or other short periods not related to work. HMRC will however restrict relief when significant non-business use is part of the purpose of the accommodation having been provided.
If relief is restricted, it will be so to the equivalent reasonable cost of accommodation that might have been provided to a single employee, and at a location convenient for the needs of the job for the duration of the secondment.
UK secondment example 5
A woman who works for an Irish company is seconded for a period of 16 months to work in Central London. The employer pays an allowance of £560 per week which is used for her subsistence and accommodation. Though this allowance was intended to accommodate her in a hotel, she rents a flat in Tooting for the duration of the secondment. The two-bedroom flat costs £400 per week and she spends the remainder of her allowance on travel and subsistence between the flat and the place of work.
HMRC would accept the money spent on the flat accommodation as reasonable and not excessive. The payment can be made free of PAYE and Class 1 NIC if it is demonstrated that the total does no more than cover the amount that an employee in her position would typically expect to spend on travel, accommodation and subsistence. It must be detailed on a P11D; the employee will be permitted relief against the amount that she actually spends.
UK secondment example 6
An employee of a business in Austria is in the UK on secondment for a period of 18 months. Her employer rents a house with six bedrooms in Chelsea for her use at a rate of £5,000 per week.
HMRC understands in some cases that there will be a business need for accommodation on this scale, but there will be a need to establish this requirement. HMRC might otherwise restrict relief to the cost of accommodation that they might regard as attributable to the employee’s necessary attendance at the workplace of the secondment.
UK secondment example 7
An employee of a business based in Germany is in the UK on secondment for a period of 18 months. The business provides her with a four bedroom house as she has a husband and two children travelling with her. In equivalent circumstances, an unmarried employee would have been provided with a two bedroom flat by the employer.
It is clear that part of what the employer has provided is not a necessary expense solely for travel and subsistence of the employee. Part of the accommodation is attributable to the family that accompanies the employee. Relief ought to be limited to a two bedroom flat – the provision for a single employee.
UK secondment example 8
An employee from Sweden is seconded for a period of 15 months to Exeter. He chooses to find accommodation in Salcombe, which is a more expensive place to live than Exeter, because he is a keen sailor.
Based on this knowledge, the cost of living in Salcombe is not solely attributable to the needs of the business trip. The relief should be limited to accommodation costs in Exeter; secondly, no relief will be permitted for the travel cost between Salcombe and Exeter.
The key factor in this example is that the employee’s choice regarding where to live during his secondment will give rise to additional costs. These costs are attributable to the employee’s private interests and not to the secondment. Sometimes, employees are permitted some level of discretion about where to live during their secondment and the above example is likely to be rare. Providing that the discretion will not result in extra costs, there should be no reason to restrict the relief.
UK secondment example 9
An employee from Belgium is seconded to London to work for an 18 month period. Their employer is prepared to fund rent of up to £800 per month to all of its employees on secondment to London. The employee must live within one hour of the office, but otherwise they are free to decide where to live. She opts to live near to her sister in Ladbroke Grove and finds a one bedroom flat for £750 per month that is in a suitable location. The employer meets the cost of this.
HMRC would accept the full cost of accommodation is attributable to the business travel of the employee on secondment, and would not argue that cheaper accommodation could have been found elsewhere.
Subsistence payments
As well as relief for accommodation, an employee on secondment can claim for all additional subsistence costs generally attributable to the employee. This will cover food and drink as well as associated accommodation costs – utility bills and other expenses for business use. It is also possible that relief may be due for travel cost between the place of accommodation and the place of work. Section 241 ITEPA 2003 dictates that payments can be made for expenses incidental to the business travel up to a limit of £5 per night (£10 if outside the UK) tax-free.
Though HMRC has published tax-free subsistence rates for particular industries, they do not intend to propose or publish general application subsistence rates. It would be very complex to define accurate rates across a range of different circumstances, and it would require substantial resources to create and to maintain. Simplified rates would lead to a risk of permitting of excessive tax relief, or of being of little practical benefit and inadequate in most cases. HMRC does not accept generalised published rates such as those used by the US Internal Revenue Service (IRS) or the UN.
Employers may opt to make scale rate payments or round sum allowances from which subsistence costs can be met. The tax treatment of each method of payment is as follows:
Machinery for obtaining tax relief
Round sum allowances are normally subject to PAYE and Class 1 NICs – they are allowances paid to employees, typically in advance, and not calculated with specific expenditures in mind. It may be a standard secondment payment of £100 per day to be used or not as the employee sees fit.
If a specific expense has been identified in the round sum allowance, then that expense will not need to be included in the employee’s gross pay for NICs purposes.
If the allowance is purely for reimbursement to the employee of the accommodation and subsistence costs incurred during the secondment, then the employer may be permitted by an Inspector to pay it without deducting PAYE. Page 86 of booklet CWG2 and paragraph 9.6 of Booklet 490 (both available from HMRC) explain that the allowance should be included on either the P9D or the P11D as appropriate and the employee should then request a deduction under Section 338 ITEPA 2003 from the amounts on form P9D or P11D. Relief is given for additional amounts that an employee spends on accommodation or subsistence, but only when they are reasonable and necessary. HMRC does not regard it as unreasonable to expect an employee on secondment to keep records of their expenditure in order to justify their tax relief.
HMRC cannot give a dispensation under Section 65 ITEPA 2003 for a round sum expense allowance or on a living accommodation benefit chargeable under Section 102 ITEPA 2003.
HMRC will however grant dispensations for scale rate payments, they will be calculated on a scale intended purely to reimburse the employee for expenses that they incur which are deductible under Section 338 ITEPA 2003. The example at paragraph 9.6 in Booklet 490 (Thomas) illustrates the scale rate payment. Special conditions must be satisfied before such a dispensation can be granted and these are set out in the Employment Income Manual beginning at EIM30050.
