Fixed deductions for expenses

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Fixed deductions for expenses
  • Introduction
  • Fixed rate deductions
  • Fixed versus actual expense
  • Local agreements
Introduction

In certain circumstances, HMRC can agree an appropriate fixed rate amount (also called a flat rate expense) which can be deducted from earnings for tax purposes. These typically refer to certain classes of employees who are required to incur expenditure on things such as tools and clothing.

These amounts should not be confused with round sum allowances which are discussed in the Round sum allowances guidance note which are generally a taxable receipt for the employee.

Fixed rate deductions

HMRC can agree fixed sum deductions that are negotiated with trade unions to apply to certain classes of employees. These are rates that employers may pay free of PAYE and reporting requirements, or that an employee may claim as a deduction where the expense is not reimbursed by the employer. These fixed rates are generally agreed in instances where it is burdensome for an employer or employee to administer expenses and the associated record keeping, eg where they have particularly large numbers of small payments.

ITEPA 2003, s 367

The fixed rate deduction covers the repair and replacement of clothes and equipment of certain classes of employees in certain types of industries. The full list of fixed amounts is

More on Expenses — general principles:
Round sum allowances
Expenses during secondments
Non-business expenses
Expenses policy
Business expenses ― general rule
Expenses ― other taxes
Excessive levels of expenses
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