Cost of living allowances, other expenses and benefits

By Tolley in association with Sarah Robert of James Cowper Kreston

The following Employment Tax guidance note by Tolley in association with Sarah Robert of James Cowper Kreston provides comprehensive and up to date tax information covering:

Cost of living allowances, other expenses and benefits
General principles
Special assignment costs
Benefits

General principles

An employee may receive a payment from his employer as reimbursement of an expense incurred as part of his employment duties. These payments are not earnings within ITEPA 2003, s 62 and are therefore not taxable under that provision. Many reimbursed payments are considered as earnings under ITEPA 2003, s 72 but if a deduction would be available for the same amount under the expenses rules, the reimbursement is exempt under ITEPA 2003, s 289A (see the Business expenses ― general rule and Expenses and benefits matched by allowable deductions guidance notes).

In some circumstances (eg a payment of a home to work mileage allowance, classed as private commuting and not a business cost), a payment of expenses does not qualify for a corresponding deduction. Such a payment is treated as earnings for UK tax and NIC purposes.

Employees can be required to make payments on their employer’s behalf in many different situations. For example, an employee may buy stamps for the employer and be paid from petty cash. This transaction is outside the scope of both ITEPA 2003, s 62 and ITEPA 2003, s 72, and is therefore not taxable.

EIM01110

Special assignment costs

Detached duty claim

Where an employee is sent to work in the UK at a temporary workplace, then certain travel and subsistence payments qualify for a deduction. The definition of temporary workplace is contained in ITEPA 2003, s 339. See also EIM32075 onwards. The claim is often referred to as ‘detached duty’.

ITEPA 2003, s 338

One of the definitions of temporary workplace is that the employee is not expected to be working there for more than 24 months. If the initial assignment is for 24 months or less, the employee will meet the temporary workplace conditions as long as there is no