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Moving thoughts: employee secondment and tax

6 June 2019

 

David Whiscombe comments on temporary relocation.

When an employee is temporarily seconded elsewhere, significant costs can be incurred.  If those costs are reimbursed by the employer (or, perhaps less likely, met by the employee) what are the tax consequences?

Broadly, tax relief is available for “travel costs” in certain circumstances.  That means that those costs can be reimbursed tax-free by the employer and that the employee can get tax relief for costs that are not reimbursed.

Following a decision in a tax case of 1980, “travel costs” for this purpose are not restricted to the costs of the actual journey.  They are regarded as extending to subsistence and accommodation costs for the period of the secondment.  This can give surprisingly generous results.  If, for example, an employee working in Surrey who is seconded to Newcastle for 18 months gives up his lease on a rented flat in Surrey and instead rents in Newcastle, the full rent of the Newcastle flat will be regarded as a “travel cost” available for relief: no account is taken of the saving afforded by giving up the Surrey flat.

The rules don’t apply only to secondments within the UK: they can also apply to international secondments. Although there are separate statutory provisions that apply only to certain international moves, those provisions are often less beneficial than the main secondment rules (they don’t cover accommodation costs, for example) so it is always worth looking at the general “secondment” provisions first.

There are restrictions and complications, of course: HMRC guidance on the rules runs to 150 paragraphs or so!  One key restriction is that the secondment must be for a period that is expected to be less than two years, at the end of which the employee will revert to working for the employer elsewhere (which may be either the original workplace or some other place of secondment).  So if there is not going to be a job to go back to, the relieving rules don’t apply.

Normally, there won’t be relief if an employee moves to take up a new employment with a new employer.  This can be particularly relevant in the case of international moves: if for example an employee of a US company comes to the UK to take up employment with a UK subsidiary for a year or so, with a view to subsequently returning home and resuming his US employment, the rules won’t apply.  But if he continues throughout to be employed by the US parent throughout his secondment to the UK (even though directed and physically paid by the UK subsidiary), relief should (subject to all the other conditions) be available.  At the margins it may be difficult to say whether a single employment continues throughout: large amounts of tax relief may be at stake and care should be taken in the structuring.

For more information, please get in touch with your usual BKL contact or reply to this email.

David Whiscombe will be co-hosting our next tax webinar, on the topic of share buybacks, on Tuesday 18 June. Find out more and register free here.