Businesses sometimes need their employees to work somewhere that’s too far from their home to travel each day. This often happens for work on capital projects or out-of-town secondments.
We consider anything up to 2 hours’ total travel each day a reasonable daily travelling distance. If one of your employees needs to travel more than this, accommodation or an allowance is probably justified.
This accommodation or allowance will be exempt from tax if the:
- secondment is expected to last no more than 2 years
- work on a capital project is expected to take no more than 3 years.
The maximum tax exemption periods are:
- 2 years for a secondment
- 3 years for work on a capital project.
Capital projects are fixed term and involve work for a client not related to the employer. A capital project’s main task must be the creation, upgrade, refurbishment, replacement, or demolition of a capital asset.
Provided accommodation or accommodation allowances for capital projects can be tax exempt if employment:
- has clear start and end dates at the outset
- involves ongoing duties that are specific to the capital project
- is expected to last no more than 3 years at the distant work location.
The tax exemption will end when:
- the employer pays the employee’s costs associated with buying a house in or near the distant work location (a reimbursing relocation expense)
- it becomes clear that the employee will be at the distant work location for more than 3 years
- the employee’s involvement in the secondment or project comes to an end.
Employer-provided accommodation for new employees
New employees who are working on capital projects must meet the same conditions as existing employees to qualify for the 3 year tax exemption on accommodation.
New employees only qualify for the 2 year exemption for out-of-town secondments when they were:
- recruited to work in one place but were then sent to work at a distant workplace after recruitment
- seconded to work for another employer at a distant workplace, and they expect to go back to working for the original employer at the end of the secondment.
When expectations change
Once work is underway, it might become clear that a secondment or work on a capital project will take longer than the maximum tax exemption periods. Accommodation or accommodation allowances become taxable when the expectation changes. This tax is not applied retrospectively.
Employers need to keep clear records showing when the secondment or capital project began and when the expectation changed. Evidence of the original expectation and any change could include:
- a modification in the employee’s terms of employment
- board minutes
- planning documents
- correspondence with the client the employer is carrying out the capital project for.