Significant changes have been announced by the Department of Public Expenditure and Reform to the Civil Service rates and methodology applicable to the payment of tax free motor travel and subsistence expenses.  These changes are effective from 1 April 2017 however at the time of this Newsflash Revenue guidance IT 51 (Motoring expenses), IT 54 (Employee Subsistence Expenses) and Statement of Practice IT 2 2007 (Statement of Practice regarding travel and subsistence expenses reimbursement) have yet to be updated.

Actions for Employers

1. Review your expense systems and policies immediately and implement changes where required; and
2. Ensure details of the changes are communicated to HR, Finance and to your employees.

Subsistence expenses

In practice, subsistence may be paid or reimbursed tax-free in one of two ways by an employer:

1. Flat-rate allowances e.g. lunch, day or overnight allowances.

The tax-free treatment of such allowances is determined by the distance and time spent away from the employee’s normal workplace and home and can be paid up to the level of the prevailing schedule of published Civil Service rates.

2. Subsistence expenses paid direct or reimbursed by the employer (vouched expenses).

Where an employer pays or reimburses an employee’s subsistence expenses whilst on a business journey i.e. hotel accommodation; lunch or dinner etc. generally no taxable benefit arises once receipts are provided for the expenditure incurred.

The current Revenue guidance states that where subsistence expenses are reimbursed by employers to employees on the basis of actual costs incurred, then the amount so reimbursed will generally not exceed the Civil Service flat rate allowances for subsistence. 

Subsistence – Flat Rate Allowances effective 1 April 2017

Day allowances

There are no changes to the flat rate allowances which apply to absences more than 8km one way from the normal place of work and home.

Overnight allowances

The rates of overnight allowances payable have been increased with effect from 1 April 2017.  Revenue guidance states that an overnight allowance covers a period of up to 24 hours from the time of departure, as well as any further period not exceeding 5 hours, which is necessarily spent overnight at least 100km away from the employee’s normal workplace and home.  The overnight allowance is expected to cover the cost of accommodation and meals during the absence.

Introduction of a vouched accommodation (“VA”) rate for Dublin

Due to the rising costs of temporary accommodation in the Dublin area, it has been recognised that sourcing suitable accommodation within the standard overnight allowance rate has proved difficult for employees.

With effect from 1 April 2017, a separate vouched accommodation (“VA”) rate may be applied where:

• employees are required to stay overnight in Dublin (which is more than 100km from their normal workplace and home); and
• those employees cannot source accommodation and meals within the standard (normal) overnight allowance payable.

In such cases, employers can provide or reimburse the cost of accommodation up to the limit of the standard overnight allowance rate (€133.73) plus provide the day rate (i.e. €33.61) for meals. This should not be confused with actual vouched expenses supported by actual receipts which remain unaffected.

Foreign Subsistence Allowances

A number of changes will apply with effect from 1 April 2017.

In order to bring the rules for claiming flat rate foreign subsistence allowances in line with the domestic rules applicable since 1 July 2015, the class ‘B’ rate of allowances has now been abolished, the effect of which means all employees claim the same rates regardless of salary level or grade.  Rates have been increased and a full schedule can be obtained from your usual Deloitte contact.

Motor Car Travel Allowance

Employees who are required to use their own private car on business journeys may claim a tax-free travel allowance which is determined by their car engine size and number of business kilometres travelled in the year to date.

With effect from 1 April 2017, a new schedule of rates applies to reflect recent changes in environmentally friendly technology, road conditions and commuter behaviour:

The new Band 1 rates are lower than the previous rates for such travel.  The new Band 2 rates are higher than the previous rates for such travel. The new Band 3 rates are higher than the previous rates for such travel except for travel between 5,501km to 6,437km. The new Band 4 rates are lower for the 1201cc and above cars.

Kilometres travelled between 1 January 2017 and 31 March 2017 will count towards the aggregated kilometres for the year under the new rates.

Deloitte's View

While it is positive that a number of motor car travel and subsistence rates have increased to reflect increased costs in Ireland, the new rules will create additional work for employers who must ensure that their expense policies and systems have been updated to account for the changes which are effective from 1 April 2017. This is in the absence of updated Revenue guidance on these changes.

For the purpose of overnight subsistence rates, employers may now need to differentiate between those employees working in Dublin or elsewhere.

Employers should ensure that claim approvers understand the new rules and that processes are in place to ensure allowances are only paid in line with the new rules.  Where employers fail to implement the new rules, the risk of a PAYE exposure exists.  Likewise, the risk of being selected for Revenue audit must be considered.

It is clear that changes to work and consumer practices are now being considered in determining travel and subsistence expense policies.  The current directive from the Department of Public Expenditure and Reform confirms that further changes will be introduced in the years to come in order to align the schedule of allowable travel expenses with the Government’s National Policy on Climate Action.

Section 6 of Finance (No. 2) Act 2008 provided for a new CO2 based system of calculation of benefit in kind in respect of company cars provided by employees.  These changes were to be effected on foot of a Ministerial Order.  As the relevant departments are now considering the national policy on climate action when determining travel expense policy, it remains to be seen whether the anticipated changes to the rules calculating benefit in kind will now be introduced. 

If you need any further information in relation to the above please do not hesitate to contact your usual Deloitte contact of any of the team listed above.