Temporary Workplace Relief, an HMRC tax and social security break for companies and employees, is applicable in cases of long-term, project-based temporary assignments. It can save you a LOT of money.Benivo operates globally and offers relocations across all of North America, Europe, East Asia, and Australia. This article references a UK-specific tax structure.
This is an article about how employers and employees can save on tax and social security payments when employees temporarily relocate to or within the UK.
Should you read this article? A decision tree helper:
Do you have junior employees who move (nationally and internationally) to a new home in the UK to work on a temporary assignment (e.g. project work on a client’s site, graduate rotation programs)?
If yes, and if you are not taking advantage of Temporary Workplace Relief (TWR), both you and the employee are overpaying on tax and National Insurance Contributions (NIC).
Some companies simply aren’t aware that assignments that require an employee’s relocation count as business travel (as long as they last 24 months or less) and the cost the employee incurs are therefore not subject to tax or NIC.
Some others are aware of it, but consider the administrative and compliance effort to be too cumbersome to go through. Both groups pay the employee a cash allowance instead, which is fully taxable.
It doesn’t have to be that way.
Key takeaways in this article:
- Learn how to take advantage of TWR. What types of cost can be deducted?
- If you currently pay temporarily relocating employees a cash sum - change it to an expenses structure. Example - Engineer Shivani on a 12 month client project in Bristol:
- Traditional scenario: £50,000 gross + £12,000 cash to pay rent = £62k gross
- Suggested Change: £50,000 + £12,000 rent cost reimbursements against invoice. Company saves £1,656 and Shivani saves £5,040 - this is like a 14% gross salary increase for Shivani!
- While this may sound like it’s a lot of administrative and compliance work, you can use Benivo to do this work for you.
- By making these changes (adjusting compensation to separate tax-exempt cost; using Benivo to effortlessly realize the savings), companies can save a lot of money on social security and leave much more cash-in-hand to their employees
Do we have your attention?
Great, let’s go a little deeper.
In the UK, there are two ways to save on tax and National Insurance (NI) when it comes to employee relocation - Relocation Allowance (RA) and Temporary Workplace Relief (TWR). In this article, we cover TWR. We discuss RA here.
What is Temporary Workplace Relief?
Cost that have been incurred by an employee during business travel in the performance of the duties of the employment are not subject to Income Tax and National Insurance Contributions (NIC).
This is common knowledge. What is less well known is that HMRC interprets business travel widely and includes an employee’s temporary project work in a location away from home for up to 24 months.
This is called Temporary Workplace Relief (TWR), sometimes also referred to as Detached Duty.
As opposed to Relocation Allowance, TWR has no upper limit on how much can be deducted. The only conditions are:
- That these expenses have been incurred in the performance of the duties of the employment.
- That these are expenses the company reimburses the employee for and
- That they are in the approved cost categories (see further below).
TWR works equally well in the case of the employee pre-paying and then submitting the receipts to the company as well as the company paying for the cost directly, providing vouchers or the facility itself (hotel, flight, restaurant).
Let’s look at a few examples:
Example 1: Relocation from abroad
Shivani, an engineer employed by ACME India, is sent to do project work on a client’s site in Bristol for 1 year.
- For this year, she receives a salary of £50,000. She is still, formally, an employee of ACME India. But working in the UK for longer than 6 months, she is subject to UK tax laws.
- ACME UK reimburses Shivani for the rent she pays in Bristol, £1,000 per month.
- Shivani’s stay counts as business travel and the employer has agreed to reimburse her rent, therefore no tax is due on this benefit. Shivani pays her rent and subsequently requests to be reimbursed by ACME UK on a monthly basis.
- Shivani does not have to pay tax or National Insurance Contribution (NIC) on this benefit, nor does ACME India have to pay the 13.8% employer’s NIC.
- If, instead, ACME India paid Shivani 12,000 directly into her bank account to pay her rent as she sees fit, it would be fully taxable: Shivani would be paying 40% in income tax and 12% in NIC - a total of £5,040. ACME India would be paying NIC of 13.8% of £12,000, i.e. £1,656.
If Shivani got the £12k rent as part of her salary, she’d be earning an effective gross of £62k, all of which would be taxable - her net would be £43,427. But by ACME taking advantage of TWR and reimbursing her for her rent payments (which are not subject to tax), she makes an effective net of £48,468, which is as if she had a gross of £70,692 - a whopping 14% more!
To satisfy the “temporary” requirement, a relationship with the home company needs to be maintained. In the example, Shivani needs to still be employed by ACME India, even if she has a UK bank account and is paid in GBP for these 12 months.
Example 2: Relocation within the UK
Ian is a recent hospitality graduate from the University of West London and works on an entry-level 12 month rotational programme at a large hotel chain. Every few months, he moves to a new location.
- His yearly salary is £18,000, and he receives no further allowance and is not housed in the company’s hotel room - he needs to pay market rates for housing. On these £18k, Ian pays £2,593 in tax & NI. His monthly expenses on rent and food are £750.
- If, instead, his salary were restructured in a way that
- his yearly salary is £12k (just above minimum wage for his age group)
- and a monthly £500 is used to pay part of his rent and living cost directly, Ian would only be taxed on the £12,000, which would be a total of £673. He would still have an effective gross salary of £18,000 - however £6,000 (12*£500) would be tax free, as long as it is spent directly on rent and food.
By changing Ian’s compensation structure to take advantage of TWR, the company generates an incremental net of £1,920 per year to Ian, which amounts to a 16% gross salary increase, while reducing their own NI contributions by £828 per year.
Which type of cost qualify?
Let’s look at which types of expenditures can be kept tax free under TWR. Please note that the rules are very detailed and here we only paint the broad strokes. For details see HMRC’s Booklet 490 on Employee Travel.
- Accommodation including utilities. This includes long-term stays as in Shivani’s case (see paragraph 5.4 of Booklet 490).
- Travel - this includes the main trip to or within the UK that marks the beginning and end of the assignment. All travelling for work is included, even what would be considered an “ordinary commute”: If the employee is on a max 24 month assignment, their trips from their temporary home to their workplace are still tax exempt, as are other work-related trips (e.g. Shivani’s weekly trip from Bristol to ACME London). Shivani’s trips back home to India during her 12 month assignment do not qualify, however, as these are incurred for private purposes (to see her family).
- Daily subsistence cost - all food and drink. Of course, this would not include Shivani’s food and drink when she is visiting her Family in India. However, all food and drink qualifies while on her assignment in Bristol (even if she is e.g. having dinner with a personal friend).
- Any other cost that is directly related to the performance of the temporarily relocated employee’s work.
The expenses need to have been incurred in the performance of duties of the employment. However, in the special case we are discussing here (long-term work assignments), this concept is interpreted widely (analog to the case of Shivani’s “ordinary commute” being tax exempt). Therefore, a leisurly Sunday lunch qualifies (as long as it is covered by the company’s expense policy, of course).
It’s worth repeating that, same as with the Relocation Allowance, this must not be a cash sum provided to the employee, from which (s)he can pay her way. As soon as the employee has the choice to spend the money as they wish, the tax exempt status disappears. If, however, the employer provides an allowance of e.g. up to £30 per day on meals, the employee spends £25 on a given day and receives these £25 refunded, tax exempt status is maintained.
Finally, the tax break only applies to the employee him/herself but not to their family. This can lead to quite a bit of complexity if an employer picks up the entire bill for the employee’s accommodation and subsistence, even if it includes family. Best to consult with your tax specialist on how to treat these cases.
Why does this matter?
Most companies take advantage of TWR for their senior employees: there’s fewer of them (so there’s not that much admin work), they are usually better informed about matters of tax, and they have higher allowances under the employer's policy.
But junior staff are more affected - there’s more of them, and the incremental money matters more to them. But faced with the associated workload in processing lots of small receipts and compliance requirements, many companies choose to simplify by paying cash up front, even if it is fully taxable.
This is where Benivo can help.
Working with Benivo - next steps
Benivo is a tool to help your employees relocate. An important feature of our platform is invoice management and tax compliance for relocation-related expenses. → Benivo is your compliance-ready partner to realize tax and NIC savings that TWR offers.
The rules that govern TWR can be very detailed and complicated. When you use Benivo as your relocation support tool, you outsource a large part of the hassle to us.
- You tell us your spend limits in each cost category for every employee
- The employee can make payments through our platform.
- We reimburse the employee and take care of the documentation of invoices, separating the tax-exempt bills from the taxable ones.
- You reimburse us.
So if your company is relocating many employees on temporary assignments, and is not taking advantage of Temporary Workplace Relief, you are leaving a lot of money on the table, both for yourself and the employee.
Get in touch with Benivo and discuss how we can help your employees on temporary assignments to benefit from professional relocation support and help you save on taxes and social security payments1.
Write us at email@example.com
1We are not a financial advisor and our estimate cannot be interpreted as constituting a binding commitment of any kind. It will merely be an educated calculation based on the letter of the law as to be found on HMRC’s website. You will be responsible for corroborating our calculations with your own independent financial advisor
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