Employees often seem to think they cannot get a tax deduction for their expenses. In fact, they may be able to claim tax relief if they pay for travel or spend their own money on things they have to buy for work, reports Money Marketing.
Lots of clients fail to claim tax relief for their legitimate expenses, so it makes sense to understand the basic rules about employees’ allowable expenses.
That said, HM Revenue & Customs sets a high bar for employee expenses – certainly compared with the less restrictive rules for the self-employed. Even the HMRC practice manual says: “The general rule for employees’ expenses is very restrictive.”
The basic principle is employees’ and directors’ expenses must be ‘wholly and exclusively’ incurred in the performance of their duties.
This means employees can only claim relief for things they use solely for work, not in their private life. For example, they cannot claim for ordinary clothing. Nor can they claim for the cost of things if their employer has provided an alternative. It is also necessary to keep records of the expenses and claim within four years of the end of the tax year in which the money was spent.
Employees and directors should expect HMRC inspectors to be fundamentally sceptical about such claims. In particular, they may want to know why expenditure was necessary in the performance of the duties if the employer decided not to pay for it. Obviously, it is also not possible to claim for something the employer did pay for.
What can be claimed?
It may be possible to claim for repairing or replacing small tools employees need for their job (for example, an electric drill) and for cleaning, repairing or replacing specialist clothing. It is not possible to claim relief on the initial cost of buying small tools or clothing for work.
Employees often incur travelling expenses and can claim a deduction for the costs. The costs of travelling to a from a workplace cannot be claimed, unless it is a temporary place of work. Those who use their own vehicle for work may be able to claim mileage allowance relief, currently 45p a mile for the first 10,000 business miles and 25p a mile above that. If an employer does not pay employees this full mileage allowance, they can claim the difference. Record keeping of dates of trips and mileage is essential.
Employees who do have to travel for work may be able to claim tax relief on subsistence. This includes hotel accommodation where it is necessary to stay overnight, food and drink, public transport costs, congestion charges and tolls, and parking fees.
The subscriptions to some approved professional organisations can usually be reclaimed too. However, HMRC must have specifically approved the organisations.
More and more employees are required to work from home on a regular basis and may therefore be able to get tax back for some of the bills they have to pay. These expenses can only be for things to do with work, though: for example, business telephone calls or the extra cost of gas and electricity for their work area.
Employees cannot claim for things used for both private and business, such as access to broadband. It is not necessary to provide records for claims of up
to £4 a week but HMRC will want to see evidence of expenses for claims over that amount.
If you would like more information on tax planning opportunities centred on your personal circumstances, please contact us >>