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Travel Allowances and Tax

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As an employer, you may pay cash allowances to reimburse an employee for travel between home and work. For a travel allowance to be tax-free, the travel must be ‘on work’ rather than just ‘getting to work’. A tax-free travel allowance must be for travel costs on top of the usual cost of travel between home and work and the travel must be work-related.

The tax-free amount is the actual cost of travelling between home and work, less the employee's usual transport costs. The amount for the employee's usual travel costs is taxable.

Where the employee is using their own vehicle, you can use Inland Revenue’s rates to calculate costs.

Where an employee works from home, and travels for work, a travel allowance or reimbursement would be tax-free when:

  • the employee’s home is their base of operations (or one of them) and their work takes them all over the place
  • the employee is on call at home and must travel to emergency callouts
  • the travel is ‘on work’ between two workplaces, one of which is also the employee’s home.

The tax treatment for travel from home to a distant workplace takes other factors into account as well.

Keep in mind that a travel allowance is considered to be tax-free if it pays an employee back for travel that is somehow additional to what they would normally undertake to go to and from work. Where paying allowances for travel, make a note of the special circumstances which justify the allowance being tax-free.

Download the guide to Travel Allowances & Tax

 

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