If you are an employee and you spend certain business expenses yourself for performing your duties for business, that your employer does or does not reimburse, you might be able to get tax relief. This only applies to business expenses that relate to performing your duties towards business.
What sorts of expenses will I be eligible for tax relief?
The guidelines for claiming expenses against your employment income are very stern. The general principal for claiming expense is that they must be incurred ‘wholly, exclusively and necessarily’ in the performance of your duties.
If you are an employee and you spend for your travel expenses that are pertained to your job, but you are not going to get reimbursement by your employer, you might be able to get tax relief on them.
It is critical to comprehend that the instructions on, what travel expenses qualify for tax relief, are quite harsh. There are normally no tax relief/deductions available for the costs of 'ordinary commuting' –i.e. travel between home and a permanent place. On the off chance that you are not a taxpayer, you would not be eligible to get tax relief.
What are the thumb rules for allowing travel expense?
Travel expenses are only allowable for tax if:
- You must do the journeys in the performance of the duties of your employment or,
- they are trips which you make to or from a place you have to attend in the performance of your duties, which can include trips from office or other workplace to official visit to a customer or other ‘temporary’ business place. This regime can also include travel directly from your home to official visit to a customer or other ‘temporary’ business place. For a comprehensive guide on travel rules, you can read more on Gov.uk.
What qualifies as a temporary workplace?
It is vital to know that an expense between an employee’s home and permanent workplace won’t be considered as an allowable expense, whereas travel expenses between an employee’s home and temporary workplace could be allowable.
Most employee never face any difficulties in recognising their permanent workplace as it will be the place where they regularly go to work. It could be a factory, office, shop or someplace. You could have more than one permanent workplace if you have two jobs for example, or if your employer requires you to work in one location for two days a week and in another location for three days a week on an ongoing basis.
A temporary workplace is somewhere you don’t attend regularly, does not follow a pattern and is for a restricted period of time. For example, if you are usually employed in Harrow, but your employer requires you to work from an office situated in Manchester for a period of six month, then that office in Manchester would be considered as a temporary workplace.
Though, a workplace won’t be counted as “temporary” if you are visiting it for a period of continuous work that lasts or is expected to last more than 24 months.
Is there any tax relief of claim for special tools and clothing?
The cost of normal Clothing, which an employee wears every day to work, is not a tax-deductible expense. However, HMRC has approved that employees in specific-industries could claim tax relief on certain amounts for the maintenance of tools or any ‘specialist’ or protective work clothing which are not reimbursed by the employer – these are recognised as flat rate expenses. For the flat rate or what you can claim, refer Gov.uk.
‘Specialist’ work clothing includes a uniform as well. A deduction could be allowed for clothing that is identifiably a uniform or part of a uniform, where the employee is required by his or her duties to wear it and must bear the cost of it. A uniform in this context means a set of clothing of a specialised nature that is recognisable as a uniform and is intended to identify its wearer as having a particular occupation. Examples include traditional nurse or police uniforms. If you are compulsorily required to wear clothing branded with logos or the company name, etc. this would also be considered as a uniform; but a removable badge/logos would not be sufficient to make ordinary clothing into a uniform. For more details Refer Gov.uk.
Generally, you are not allowed to claim the initial cost of procurement tools and specialist or protective clothing. Instead, you can claim for their maintenance, for example, repairing, cleaning or replacing them. You should remember that though you only use your own washing machine at home to clean your protective clothing, there is a small cost to you associated with this in terms of electricity, detergent, etc. The flat rate system is therefore useful, as you do not need to keep the record of receipts which you actually spend i.e. less admin work.
Other tax-deductible employment expenses which you can claim?
There are a few other categories of tax-deductible employment expenses allowed under the law. In order to perform their duties or profession, numerous employees are required to pay professional fees or subscriptions to trade bodies or institutes. For instance, A lawyer for practising purpose must pay for an annual practising certificate to the Solicitors Regulation Authority.
In a few cases, the professional fee or subscription is not required essentially to the practice of the job but relatable to the job. For instance, payment of subscription fees to the various accounting and tax professional bodies. whereas you can still practise as a tax adviser or accountant without membership of such bodies it’s not specifically required but it’s related to performing of duties. For more details refer Gov.uk.
Several employers bear these fees in aid of their employees. It would be considered as a taxable benefit in the hands of the employee, but they may be able to claim a deduction from their employment income. If the employee would be able to claim such a deduction, then the employer’s payment of the fee or subscription will be fallen under an exemption of expenses which would otherwise be allowable as deduction and there would not be tax, NIC or reporting implications.
Unless it considers as exemption otherwise it is a taxable benefit in the hands of the employee. The benefit is taxable as employment income in the hands of the employee. The amount of the benefit is the cost to the employer. Irrespective of whether the payment is exempt in the hands of the employee, the amount paid by the employer is deductible for the purposes of calculating the adjusted profits.
What will be the process to claim a employment expenses refund?
For getting relief, Firstly, you must establish that your expenses are eligible for tax relief as mentioned above. You must not only meet the criteria for getting relief, but you also need to make sure you are getting enough and paying enough tax to get the tax relief. For example, in 2019/20, your total taxable earning should be over £12,500.
For example, Andrew earns £12,850 in 2019/20. After the personal allowance deductions, he will have a taxable income of £350, i.e. he has to pay a tax of amount £70 @ 20%. He had paid from his salary £200 towards his qualifying expenses. Through putting in a tax claim, he will not get the £200 refund from HMRC, but he will get the tax back on the £200 i.e.£40 (he has paid tax at 20%),
If his expenses were £450, his tax relief/claim would be restricted to £350 and the tax refund is restricted to £70.
For getting tax relief, you have to put a claim with the HMRC. If you do not usually have to complete a tax return, a claim can be made by filling the form P87, which you can complete and submit online. You will be able to find this form in your self-assessment Tax Account in the PAYE/current year/check your income tax estimate section.
There are two ways to complete the form, either you can complete online or send a paper-based form. If you submit the P87 online, you still have to print it out and post it to HMRC. You cannot save any draft for the same i.e. you need to complete the form in a single go, so before starting to fill make sure you have all information handy. For instance:
- The tax year for which your claim relates to
- Your personal details including address, date of birth, and National Insurance number.
- Your employer’s details including name, type of business, address and employer reference number
- Details of the expenses you wish to claim
- Repayment instructions – if you wish for directly paid to your bank account, bank details or else address where you want to receive the cheques
If you prefer a paper version of form P87 for submission, then you will have to request it by calling HMRC’s helpline, they will post the same to your registered address. For more Details refer Gov.uk.
Where the amount of expenses claimed is more than £2,500, then the tax relief/claim must be made through the formal submission of SA tax return.
If you are not a taxpayer, because you do not earn enough or it is covered by the personal allowances, then, unfortunately, you cannot obtain any tax relief.
What will be the tax position if expenses are reimbursed by the employer?
Most of the expenses you incur at work as an employee normally are paid for by your employer. A few other work expenses like travel and accommodation or professional subscription expenses – may be reimbursed by your employer.
From April 2016, the system is being simplified and instead of deductions you will get an exemption, and HMRC will generally take that business expenses which are reimbursed by your employer and won’t be part of a taxable benefit for you.
When an expense is reimbursed, HMRC has to be satisfied that the expense is allowable for tax purposes and qualifies as an business expenses like the expense must be incurred in the performance of services as an employee and an employee must substantiate his or her business expenses by providing the employer with evidence of the amount, time, place, and business purpose of the expense etc. otherwise the reimbursement will be considered as additional taxable income.
For example: An employee who is a sales manager is asked by her employer to attend a dinner dance for sales staff. She has 2 small children and needs to pay a babysitter to look after them while she is out. She asks for a deduction for the expense of the babysitter. No deduction is due. The expense is not one that is necessarily incurred in carrying out the duties of her employment.
Where can I get more information regarding expense claims?
For more knowledge about this aspect please refer HMRC's employment manual on GOV.UK about employment expenses.
In addition, HMRC has provided details on GOV.UK on how to get allowances and reliefs.