THE UPPER TRIBUNAL	Appeal No.  CH/1241/2013
ADMINISTRATIVE APPEALS CHAMBER

SS v St Edmundsbury Borough Council (HB)

DECISION

The appeal is dismissed. 
For the reasons below, the decision of the First-tier tribunal is confirmed. 

For the avoidance of doubt, this applies to both housing benefit and council tax benefit. 

REASONS FOR DECISION

1	The appellant, S, is appealing against a decision of the First-tier Tribunal sitting in Norwich on 15 12 2012. S appealed to the tribunal from two linked decisions of her local authority (the Council) reassessing S’s entitlement to housing benefit and council tax benefit. 
The reassessments arose because S informed the Council that she was receiving a travel allowance from her employer. The Council regarded the sums paid as being increases in pay. S regarded them as being reimbursements of expenses. The First-tier Tribunal agreed with the Council. I granted permission to appeal to the Upper Tribunal because I considered that this raised a general issue about such expenses that warranted full consideration on appeal.

The facts
2	In income tax terms S is in employment and is receiving employment income. This is of course liable to deductions on payment under the PAYE system for income tax and national insurance contributions. S first claimed housing benefit and council tax benefit when receiving maternity pay, tax credits and child benefit. She then started receiving earnings again while continuing to receive benefits because she was a single parent working part time only. 

3	In 2011 S informed the Council of two changes of circumstance. First, her place of work had been moved. As a result she was to be paid, for three years, a fuel allowance that took into account the distance she would have to drive to work after the change of location. Separately, she had previously been paying for her child’s place at a nursery through a salary sacrifice scheme. She was now paying it direct to the nursery. The nursery costs are not in issue here. Following this, the employer contacted the Council to confirm the additional payments to S, stating that in the employer’s view the additional payments were regarded as reimbursement of expenses and not a salary increase. S again contacted the Council to state that the reimbursed expenses were being subject to tax.

4	In response the Council stated that in its view the matter was covered by regulation 35 (1)(f)(i) of the Housing Benefit Regulations 2006 (the 2006 Regulations). As such the sums received for travelling were earnings and were taken into account accordingly.

5	S appealed. Her principal concern was that the result of the revision was that she had lost out significantly because of the relocation. Although the employer was to pay her 40p a mile for the additional travel, she was subject to income tax and national insurance contributions on that and was losing housing benefit and council tax benefit. 

6	The First-tier Tribunal, after a full oral hearing, confirmed the decision of the Council. It found on the facts that S was being paid to travel to work. As a result, following Commissioner’s decision CH 1330 2008 and as required by regulation 35 of the 2006 Regulations, this was regarded as taxable income. The tribunal reached this conclusion on the evidence before it, including the terms and conditions in S’s contract of employment. 

The law 
7	Housing benefit is an income-related benefit. So was council tax benefit, now replaced by council tax reduction. As the rules of the former council tax benefit were essentially the same on this point as those of housing benefit, I refer to the housing benefit rules only in this decision. 

8	The general provision making housing benefit income-related is in section 130 of the Social Security Contributions and Benefits Act 1992. Section 136 gives power to deal with the matter in prescribed rules. The detail is in the 2006 Regulations, starting with regulation 27. It is only regulation 35 of those regulations that is in issue here.  

9	Regulation 35 provides:

“Earnings of employed earners

35.  (1)  Subject to paragraph (2), “earnings” means in the case of employment as an employed earner, any remuneration or profit derived from that employment and includes— 
(a) any bonus or commission; 
(b) any payment in lieu of remuneration except any periodic sum paid to a claimant on account of the termination of his employment by reason of redundancy; 
(c) any payment in lieu of notice or any lump sum payment intended as compensation for the loss of employment but only in so far as it represents loss of income; 
(d) any holiday pay except any payable more than 4 weeks after termination or interruption of the employment; 
(e) any payment by way of a retainer; 
(f) any payment made by the claimant’s employer in respect of expenses not wholly, exclusively and necessarily incurred in the performance of the duties of the employment, including any payment made by the claimant’s employer in respect of— 
	(i) travelling expenses incurred by the claimant between his home and place 	of employment; 
	(ii) expenses incurred by the claimant under arrangements made for the care 	of a member of his family owing to the claimant’s absence from home; 
(g) any award of compensation made under section 112(4) or 117(3)(a) of the Employment Rights Act 1996 (remedies and compensation for unfair dismissal); 
(h) any such sum as is referred to in section 112 of the Act (certain sums to be earnings for social security purposes); 
(i) any statutory sick pay, statutory maternity pay, statutory paternity pay or statutory adoption pay, or a corresponding payment under any enactment having effect in Northern Ireland; 
(j) any remuneration paid by or on behalf of an employer to the claimant who for the time being is on maternity leave, paternity leave or adoption leave or is absent from work because he is ill; 
(k) the amount of any payment by way of a non-cash voucher which has been taken into account in the computation of a person’s earnings in accordance with Part 5 of Schedule 3 to the Social Security (Contributions) Regulations 2001. 

(2) Earnings shall not include— 
(a) subject to paragraph (3), any payment in kind; 
(b) any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment; 
(c) any occupational pension. 

(3) Paragraph (2)(a) shall not apply in respect of any non-cash voucher referred to in paragraph (1)(k).” 

I have emboldened the key text relevant here. In effect, regulation 35(1)(f)(i) and regulation 35(2)(b) sit side by side, imposing the same test on travel expenses. The approach is that any payment for travel is to be treated as earnings unless it falls within the exception.  

The income tax rules
10	 The emboldened wording of regulation 35 echoes some of the key wording of the longstanding income tax provisions about travel expenses. For many years the test was that in section 198 of the Income and Corporation Taxes Act 1988 and in identical wording in predecessor Acts. The relevant wording was:

	“If the holder of an office or employment is necessarily obliged to incur and 	defray out of the emoluments of the office or employment the expenses of 	travelling in the performance of the duties of the office or employment, or of 	keeping or maintaining a horse to enable him to perform those duties … there may 	be deducted from those emoluments to be assessed the expenses so necessarily 	incurred and defrayed.”

That was typically summarised (for those not owning work horses) as allowing a deduction for the expenses of those travelling at work but not those travelling to work. 

11	Those rules were rewritten in 2003 into sections 337 to 339 of the Income Tax (Employment and Pensions) Act 2003. These provide: 

“337	Travel in performance of duties
 
(1)	A deduction from earnings is allowed for travel expenses if— 
(a)the employee is obliged to incur and pay them as holder of the employment, and 
(b)the expenses are necessarily incurred on travelling in the performance of the duties of the employment. 

(2)	This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs). 

338	Travel for necessary attendance

(1)	A deduction from earnings is allowed for travel expenses if— 
(a)the employee is obliged to incur and pay them as holder of the employment, and 
(b)the expenses are attributable to the employee’s necessary attendance at any place in the performance of the duties of the employment. 

(2)	Subsection (1) does not apply to the expenses of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting. 

(3)	In this section “ordinary commuting” means travel between— 
(a)the employee’s home and a permanent workplace, or 
(b)a place that is not a workplace and a permanent workplace. 

(4)	Subsection (1) does not apply to the expenses of private travel or travel between any two places that is for practical purposes substantially private travel. 
(5)	In subsection (4) “private travel” means travel between— 
(a)the employee’s home and a place that is not a workplace, or 
(b)two places neither of which is a workplace. 

(6)	This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

339	Meaning of “workplace” and “permanent workplace”

(1)	In this Part “workplace”, in relation to an employment, means a place at which the employee’s attendance is necessary in the performance of the duties of the employment. 

(2)	In this Part “permanent workplace”, in relation to an employment, means a place which— 
(a)the employee regularly attends in the performance of the duties of the mployment, and 
(b)is not a temporary workplace. 
This is subject to subsections (4) and (8). 

(3)	In subsection (2) “temporary workplace”, in relation to an employment, means a place which the employee attends in the performance of the duties of the employment— 
(a)for the purpose of performing a task of limited duration, or 
(b)for some other temporary purpose. 
This is subject to subsections (4) and (5). 

(4)	A place which the employee regularly attends in the performance of the duties of the employment is treated as a permanent workplace and not a temporary workplace if— 
(a)it forms the base from which those duties are performed, or 
(b)the tasks to be carried out in the performance of those duties are allocated there. 

(5)	A place is not regarded as a temporary workplace if the employee’s attendance is— 
(a)in the course of a period of continuous work at that place— 
	(i)lasting more than 24 months, or 
	(ii)comprising all or almost all of the period for which the employee is likely to 	hold the employment, or 
(b)at a time when it is reasonable to assume that it will be in the course of such a period. 

(6)	For the purposes of subsection (5), a period is a period of continuous work at a place if over the period the duties of the employment are performed to a significant extent at the place. 

(7)	An actual or contemplated modification of the place at which duties are performed is to be disregarded for the purposes of subsections (5) and (6) if it does not, or would not, have any substantial effect on the employee’s journey, or expenses of travelling, to and from the place where they are performed. 

(8)	An employee is treated as having a permanent workplace consisting of an area if— 
(a)the duties of the employment are defined by reference to an area (whether or not they also require attendance at places outside it), 
(b)in the performance of those duties the employee attends different places within the area, 
(c)none of the places the employee attends in the performance of those duties is a permanent workplace, and 
(d)the area would be a permanent workplace if subsections (2), (3), (5), (6) and (7) referred to the area where they refer to a place.”

I have set out this text in full because it now deals expressly with the issue of temporary places of work.

12	For completeness, the following official guidance is published by HMRC about mileage allowances. These are dealt with in section 359, as noted above, but the full text is not needed here. The guidance is about mileage allowance payments (MAPS) and approved mileage allowance payments (AMAPs) can be found at http://www.hmrc.gov.uk/payerti/exb/a-z/m/mileage-expenses.htm. The core is as follows:

“Definitions or restrictions - MAPs
Mileage Allowance Payments (MAPs) are payments you make to an employee for expenses related to their use of their own vehicle for business travel. MAPs do not include:
	Payments that aren't made to an employee. 
	Payments that aren't related to expenses of business travel in the employee's 	own vehicle. 
Benefits provided in connection with the employee's business use of their private vehicle, such as fuel, insurance and vehicle maintenance (note that these are chargeable in full, with no reduction for the business proportion of the vehicle's use). 
Only two types of journey count as business travel:
	journeys that form part of an employee's employment duties (such as 	journeys between clients' premises by a salesperson) 
	journeys that relate to an employee's attendance at a temporary workplace 
Definitions or restrictions - AMAPs
You are allowed to pay employees up to the approved amount of MAPs each year without having to report them to HM Revenue & Customs (HMRC) or pay any tax on them. These tax-exempt payments are known as 'approved mileage allowance payments' (AMAPs).”

CH 1330 2008
13	The one authority mentioned by the First-tier Tribunal in its decision is an unreported decision of (then) Commissioner Jacobs, CH 1330 2008. The appellant in that case was at the relevant time employed as a care attendant. Her place of work was defined as a London Borough. Her employer paid travelling expenses and informed the tribunal that these were regarded as deductible for income tax purposes.  The case was, as here, a housing benefit case.  The social security tribunal overruled the local authority and allowed the appellant to deduct agreed travel expenses as incurred wholly, exclusively and necessarily in the performance of the appellant’s duties. The local authority appealed against this because, it argued, travel expenses were not deductible. Having heard both arguments, the Commissioner confirmed the decision of the tribunal and dismissed the appeal. In his view the critical factual finding was that the appellant did not have a place of work and was travelling on her duties as soon as she left home. So her reasonable expenses for that were deductible. 

14	That decision confirms and clarifies the rules, but does not help S. First, the starting point is that a payment for travelling expenses is to be treated as earnings under regulation 35 unless the exception applies. The question behind that in any case is whether travel is in the performance of the duties of an employment – or, in the usual language, is travel “at work”. Unlike the appellant in that case who had no one fixed place of work so had to travel at work, S has a place of work. 

Application to this case
15	When granting permission to appeal I commented:

“6 …The general definition of “earnings” for income tax purposes is in section 62 of that Act. This is supplemented for most employees by the “benefit code” set out from section 63 of that Act. It is in my provisional view the case that the appellant was receiving sums of money from her employer that were within section 62. The sums are therefore taxable to income tax unless deductions are allowed under specific provisions, of which section 337 is the key provision. Section 337 is to be read with section 359 of that Act. That section prevents deduction of certain travel expenses for income tax purposes and is not in issue here. If that is so, then the employer should have been deducting income tax from the expenses under the PAYE system when paying the appellant unless her total earnings were below £8,500 a year. 

7	The appellant’s appeal is to be judged against that background. The core facts (or, rather, part of them) are not in dispute. The appellant is employed by [an]  authority. Following restructuring by the authority the appellant was required to travel 56 miles to work rather than the 3 miles she previously travelled… The evidence of the authority was that this payment was for 3 years only. Rather more cryptically, the letter from the … authority states that the payment is “not deemed to be profitable” but that it is “taxed in accordance with HMRC guidelines”.

8	As the point was specifically in question as a result of this letter, I note that the First-tier Tribunal has made no finding about whether the travel expenses were subject to income tax by the employer under the PAYE system or on the employee directly. Further, the appellant makes the point that these were not travel expenses but a reimbursement of the cost of fuel (see her letter of 3 April 2012). That point, although not a strong one, has not been dealt with specifically by the tribunal. The point might involve the relevant conditions of service of the appellant and these are not specifically in evidence. “  

16	I asked the parties for further evidence and then submissions on these points. It is now clear as a matter of law that the payments have been treated properly as earnings and that they have been subject to the deduction of income tax by the employer. However, the question whether the expenses are deductible expenses for income tax purposes is technically a separate one where the payments are not mileage allowance payments (MAPs) in accordance with the guidance above.  This is because it is for the employee to claim them rather than the employer to allow them. The benefit rules bring the two stages of consideration together differently but with the same end result in view. 

17	In practice the key test is therefore that in regulation 35(2)(b). This will usually, as here, be partly a matter of law – what does the employment contract say? – and partly a matter of fact.  Here it is in my view clear that the tribunal has on the terms of S’s employment and on the full facts reached the correct decision. S had her place of employment moved, and was given temporary financial help in the form of travel expenses to reflect the extra cost of the move. But whatever they might be called by S or the employer, the payments are earnings, and they are not deductible expenses. 

18	S has stressed that this leaves her subject to a net loss in cost. She received the limited allowance. But she lost a percentage or it in income tax and national insurance contributions before she received it and then lost a further amount by way of reduction to her housing and council tax benefit and, it would seem, other benefits too.  Her point is that she was losing income tax and national insurance contributions on the amount of expense received (at 20 per cent and 12 per cent of the total payment respectively at the time as none if it is deductible). In addition she stood to lose 41 per cent of any addition as an offset against tax credits and could lose 65 per cent of it as an offset against housing benefit. There may also have been an effect on council tax benefit – now reduction – and perhaps other benefits also. Or, put another way, in the worst case she could at the relevant time have been paying/losing £1.36 or more for every £1 she received as travel expenses! This effect is often referred to by commentators as the poverty trap. It is not obvious on the facts that S was trapped in this way, but sometimes appellants are caught by the multiple operations of the tax and benefits rules so that – in practice – they are actually better off not receiving “additional” expenses payments such as the one paid here. That is, however, for them. It cannot be used as a ground of appeal against the application of the rules to any one element of that calculation. Whether or not that is so in a particular case, once the payments are received then the effect is laid down by law and cannot be mitigated by any marginal injustice caused. 

19 	I must therefore dismiss the appellant’s appeal. 

David Williams
Upper Tribunal Judge
14 04 2014

[Signed on the original on the date stated]