^{Tom Ferris is a Consultant Economist specialising in Better Regulation. He was formerly the Department of Transport’s Senior Economist.}

Department of Finance’s Consultation on Taxing Expenses of Travel and Subsistence

You still have time to submit your views on the tax treatment of expenses on business travel and subsistence; provided you do it before next Friday (21 August 2015). That is the closing date for the Department of Finance’s current Public Consultation. Specifically, the objective of the consultation is to facilitate a review of the current law and practice in relation to the tax treatment of expenses of travel and subsistence for employees and office holders. This may not be the most exciting topic to hold a consultation on, but it is important to businesses in watching their costs. The Department of Finance Consultation Paper can be accessed here.

The responses to the consultation process will provide an input into the Department of Finance’s review of the law and practice in relation to:

• the granting of a tax deduction in respect of expenses of travel incurred by employees and office holders, and
• The circumstances under which expenses of travel may be reimbursed free of tax by an employer to an employee or office holder.

What now?

At the heart of this consultation are the circumstances in which any travel and subsistence expenses should be allowed to be deducted for tax purposes. The law, as it stands, is quite specific; but it is also quite narrow. Section 114 of the Taxes Consolidation Act (TCA) 1997 states that

“Where the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments of the office or employment of profit expenses of travelling in the performance of the duties of that office or employment, … there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.”

 So the law is clear as to the conditions under which tax may be deducted. The holder of the office or employment of profit must be “necessarily obliged to incur” expenses of travelling and must be obliged to do so “in the performance of the duties of that office or employment”.  In short, there must be a necessity to incur expenses and the expenses must be incurred in the performance of duties.

The Consultation Paper makes the point that the expenses of travel that qualify for a tax deduction are generally restricted to expenses necessarily incurred on temporary absences from an individual’s place of work so long as those absences arise in the performance of the duties of the office or employment. Expenses of travel incurred by those who hold travelling appointments such as travelling salesmen, service engineers and bus drivers, also qualify for a tax deduction.

What is excluded?

The Consultation Paper provides examples of travel and subsistence that do not qualify for a tax deduction. Examples include expenses of travel incurred on journeys from home to work, work to home and between separate employments; these do not qualify for a tax deduction. Specific instances where a tax deduction would not be granted include the travel expenses incurred:

• by a nonexecutive director on the return journey from home to attend a board meeting;
• by an external examiner travelling to a third level institution; and
• by a director (generally of a small company) on the return journey from home to a workplace.

Why review existing practice?

The Consultation Paper admits that differing views have arisen in a number of areas in recent times. It refers, in particular, to the tax treatment of expenses of travel:

• by employees or office holders on the return journey from home to work;
• by non-executive directors on the return journey from home to attend board meetings;
• by directors (generally of small companies) on the return journey from home to a workplace where most of the work is carried out at the workplace but an office is maintained in the director’s home where some administrative work (e.g. issuing company invoices, preparing VAT returns) is carried out;
• by employees or directors on the return journey from home to a workplace where most of the work is carried out at the workplace but some of the work is carried out in the home; and
• by employees or directors on the return journey from home to a workplace where a small proportion of the work is carried out at the workplace (e.g. reporting to manager on performance, targets, etc.) but most of the work is carried out in the home. In some scenarios, the individual may opt to carry out the work at home while, in other cases, no workplace is provided by the employer.

The consultation process allows those with particular views on any of foregoing areas to make their views known to the Department of Finance.

Is competitiveness being adversely affected?

The tax treatment of the expenses of non-executive directors raises particular issues for companies competing in international markets.  Some tax practitioners argue that expenses of non-executive directors, including the costs of air travel and hotel accommodation, when incurred wholly, exclusively and necessarily in the performance of professional duties should not be taxable.  According to Sarah Connellan, tax partner with EY Ireland

“In general business expenses incurred by employees and directors can be reimbursed tax-free as long as certain conditions are met…But currently directors who sit on Irish boards – whether they’re multinational or Irish business – pay tax on travel to and from those board meetings, regardless of whether that individual comes from within Ireland or comes from abroad.”¹ Where this happens, an additional cost is being incurred by businesses – or directors – and, as a result, places Ireland at a competitive disadvantage when it comes to attracting foreign businesses, as well as overseas-based directors.

Overview

Businesses and directors now have an opportunity to make their views known to the Department of Finance. Any legislative changes relating to the treatment of expenses arising from this current review will obviously be drafted in the light of comments received and in liaison with the Office of the Revenue Commissioners. No legislation makes all taxpayers happy. However, taxpayers will still have the right to appeal to the Appeal Commissioners if they are not happy about the treatment of expenses under any amendments that may be made to existing legislation.