Expenses and benefits matched by allowable deductions

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

  • Expenses and benefits matched by allowable deductions
  • Overview
  • Details of the exemption
  • Scale rates
  • Cases where the exemption does not apply

Overview

Where an employer pays or reimburses expenses to an employee by reason of his employment a tax charge would normally arise under ITEPA 2003, s 72.

Similarly when an employer provides the employee with some form of non-cash benefit by reason of his employment a tax charge would normally arise on the benefit under the provisions of the benefits code in ITEPA 2003, Part 3.

From 2016/17 there is an exception to this treatment where the expenses payment or benefit in question is matched by an allowable deduction from the employee’s earnings from that employment. In such a case no charge to tax or NIC arises and the employer has no reporting requirements.

ITEPA 2003, ss 289A–289E; EIM30200

It follows therefore that the employee can only claim a deduction from earnings in respect of that expense payment or benefit if his own qualifying expenditure exceeds the amount met or reimbursed by the employer.

Details of the exemption

In the case of expenses paid or reimbursed by the employer to the employee, the exemption removes any charge to tax or NIC in cases where the employee would be entitled to a deduction from earnings in respect of the whole expense in question. There is no need for the employer to include exempt items on forms P11D.

See Example 1.

For more detail on employees’ expenses that qualify for a deduction from earnings, see the Business expenses ― general rule, Travel expenses and Subsistence expenses guidance notes.

Benefits provided to employees are exempt if the employee would be entitled to a deduction from earnings if he had paid for that particular benefit himself.

ITEPA 2003, s 289D

See Example 2.

The exemption is not available where the expenses in question are paid or reimbursed as part of a salary

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