The tax free reimbursement of motor and subsistence expenses is becoming an area of increased focus for Revenue Audits which is resulting in companies being liable for interest and penalties due to non compliance with the regulations.
The Revenue Commissioners are always reviewing mileage and subsistence claims so make sure your expense claims and records will withstand detailed Revenue scrutiny. If they don’t it will cost you!
At present Revenue are undertaking a national review of mileage and subsistence claims (the National Contractors Project) relating to contractors. Revenue have advised that cases are selected based on “high levels of tax-free deductions made from gross income”. Apparently the average settlement with Revenue is €60,000 plus.
If you have been claiming mileage and subsistence expenses in your own business my advice is that you should immediately review your records and if they are deficient in any respect you should:
- Correct your errors now so that any future claims are valid and
- Seek advice on the extent of your potential tax liabilities and penalties and the proper course of action to take.
IF YOU WANT ADVICE AND HELP CALL US ON 083 015 3313
Basic Rules
Where directors and employees necessarily incur expenses of travel and subsistence (relating to the travel) in the performance of the duties of their office or employment the reimbursement of such expenses may within certain limits be made tax free. The following conditions must be met:
- The director or employee must be temporarily away from their normal place of work in the performance of the duties of their office or employment.
- The travel expenses must be necessarily incurred in the performance of the duties of the office or employment.
- The expenses of subsistence must attach to travelling necessarily incurred in the performance of the duties of the office or employment.
If these conditions are not met any reimbursement of expenses is liable to PAYE/PRSI as if it was a payment of wages.
Sole traders cannot claim mileage and subsistence using the civil service rates but should instead keep receipts for the business portion of motor running expenses (fuel, motor tax, motor insurance), hotels and other business expenses incurred.
Normal place of work
It is absolutely crucial to note that the whole basis of the tax free reimbursement of expenses is centred around the director or employee being temporarily away from their normal place of work in the performance of the duties of their office or employment.
The “normal place of work” is the place where the employee normally performs the duties of his/her employment. In most cases, this should not give rise to difficulty.
The normal place of work of an employee may not necessarily be the place of business of the company. While there isn’t a comprehensive definition of “normal place of work” the Revenue Commissioners have stated that the normal place of work of company directors is where the duties of the office are normally performed.
This would suggest that directors would need to spend the majority of their time at the company’s premises to claim it as their normal place of work.
The employer’s business premises will be regarded as the normal place of work for an employee where:
- travel is an integral part of the job involving daily appointments with customers; or
- the duties of the employment are performed at the various premises of the employer’s customers but substantive duties are also performed at the employer’s business premises.
If a director or an employee spends little or no time at their employer’s place of business and all their time, for example, on site, the Revenue Commissioners may argue that the normal place of business of the director is in fact the site and not the employer’s place of business. This would mean that the journeys from home to site are not business journeys from a normal place of work to a site but rather a journey from home to work which of course cannot be reimbursed tax free.
An employee’s home would not be regarded as the normal place of work unless there is an objective requirement that the duties of the office or employment must be performed at home. It is not sufficient for an employee merely to carry out some of the duties at home.
IF YOU WANT ADVICE AND HELP CALL US ON 083 015 3313
Travel between Ireland and Overseas
Where an individual employed in the State is obliged to travel to a foreign location to temporarily perform the duties of his/her employment there, both the outward and the return journey home may be regarded as a business journey.
Travel Between Work and Home
Expenses incurred in travelling from home to work and from work to home cannot be reimbursed tax free. You should note the following:
- Where an individual holds more than one office or employment the travel between those separate offices or employments is considered to be travel to and from work and therefore tax free reimbursement of expenses is not allowed.
- Where an employee works at a number of locations on a daily basis in the same employment the reimbursement of expenses of travel necessarily incurred in travelling between these separate locations may be made tax free.
- Where a director or employee begins a business journey directly from home or returns directly home then the expenses of travel and subsistence that may be reimbursed without the deduction of tax are the lesser of those incurred on the journey between:
(i) home and the temporary work location or
(ii) the normal place of work and the temporary work location.
Basis of Reimbursement
If the abovementioned conditions are met the director or employee can be reimbursed tax free on the basis of:
(i) vouched receipts or
(ii) round sum expenses.
If the vouched receipts method is used then the director or employee presents the receipts of the expenses incurred together with details of the travel and subsistence and he is reimbursed accordingly.
If the round sum expenses method is used the director or employee must present a detailed mileage and subsistence sheet to the employer and can be reimbursed in accordance with the current approved civil service rates.
Example
John’s normal place of employment is Cork City. He uses his own car (a 1.8 litre Honda Accord) to drive to Dublin on 26 November 2012 at 3 p.m. to meet a client and he pays for the petrol himself. He stays overnight in Dublin at a hotel which he pays for using his own credit card as he is meeting a second client at 9 a.m. the next morning. He meets the client and then arrives back to the Cork office at 5.30 p.m.
John travels 500 km. in total. 500 km. x €0.5907 = €295.35.
Overnight allowance (A class normal rate) = €108.99.
On the following day he is away from the office from 9 a.m. to 5 p.m. and therefore he can claim an additional day allowance (between 5 and 10 hours) of €13.71.
Therefore he can claim back €418.05 from his employer on presentation of the completed mileage and subsistence sheet.
Please note that the overnight allowance reduces on long term assignments away from the normal place of business.
IF YOU WANT ADVICE AND HELP CALL US ON 083 015 3313
Books and Records
When the reimbursement is based on vouched receipts the employer must retain the receipts together with details of the travel and subsistence.
When expenses are based on an acceptable flat rate allowance the employer must retain a record of all the following:
- Name and address of the director or employee.
- The date of the journey.
- The reason for the journey.
- The kilometres involved.
- The starting point, destination and finishing point of the journey.
- The basis for the reimbursement of travel and subsistence expenses (e.g. an overnight stay away from an individual’s normal place of work).
We would also suggest including the normal place of employment and the time of departure and date and time of return.
The employer must retain the records for 6 years after the end of the tax year to which the records refer.
Site Based Employees
A site based employee may be described as one who does not have a fixed base and who, in the course of their employment, performs substantive duties on behalf of the employer at different locations. By definition such an employee cannot claim that the normal place of employment is at the employer’s business premises.
A site based employee can however receive “country money” tax free from an employer where the employee is working at a site which is 32km (20 miles) or more from the employer’s base under agreement between Construction Industry Federation and the Construction and Electrical Workers Unions.
The tax free payment of country money will not apply where:
- The employee does not incur the expense of travelling to and from the site.
- The employee is provided with board and lodgings by the employer.
- The employee is recruited to work at one site only.
Employers will sometimes simply provide accommodation and meals at the temporary location where the employee is working. A taxable benefit will not arise where the following conditions are satisfied:
- The accommodation is not the principal private residence of the employee.
- The rent paid by the employer is reasonable for the location.
- The reimbursement for the meals represents no more than a reasonable reimbursement of the cost.
Motorcycles and Bicycles
Civil service rates are available for motorcycles (maximum 28.59 cent) and bicycles (8 cent).
IF YOU WANT ADVICE AND HELP CALL US ON 083 015 3313
NEXT STEP:
Please call Sinead Herlihy today on 083 015 3313 to ensure that you operate the tax free mileage and subsistence schemes properly and avoid Revenue interest and penalties.