SE62650 - Tax treatment of engineering design employees: guidelines issued by the Federation of Engineering Design Companies - taxation of travelling expenses continued

d. It may not always be clear at the start of a contract how long it will last, and if in good faith the employer pays allowances without deduction of tax at the start of a short- term contract (as in paragraph a. above [ SE62635]), and the contract is subsequently extended, the employer must be prepared to reconsider the circumstances of the employees engaged on the contract, and to revise his original judgement. Tax should be deducted from allowances paid to an employee on secondment as soon as it is known that the twelve months’ limit will be exceeded, although in these circumstances tax would not be sought retrospectively for the earlier period. If it is known from the outset that the period of secondment will exceed twelve months the allowances must be taxed from the start of the period as the employee’s normal place of work will become the client’s premises.

Where an employer is in any doubt as to whether or not he should deduct tax from allowances paid, he should approach his local Inspector for advice or for formal authority in writing permitting him to pay specific allowances without deduction of tax in clearly defined circumstances.