Business expenses ― general rule

Produced by Tolley

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

  • Business expenses ― general rule
  • Introduction
  • The general rule
  • Incurred and paid
  • Obliged as holder of the employment
  • In the performance of the duties of the employment
  • Expenses to put employee in a position to undertake duties
  • Expenses prior to taking up employment
  • Expenses in the current employment
  • Wholly, necessarily and exclusively
  • More...

Business expenses ― general rule


In order to get tax relief on an expense, an employee must be able to satisfy the strict rules outlined in legislation and developed in case law. This applies whether the expense is reimbursed by the employer or met by the employee with no reimbursement from the employer.

In order to obtain a deduction, the expense incurred by the employee must satisfy all of the tests laid out in ITEPA 2003, s 336, ‘the general rule’. There is a long line of case law which interprets the key phrases.

There are some exceptions to the general rule, where there are specific legislative rules. If there is a specific rule then it is the specific rule which will apply. This means that it is better to see whether a specific deduction applies before turning to the general rule. If there is a specific allowable deduction then it is usually clear in which circumstances this will apply. If there is no specific deduction then the employer / employee should turn to the general rule on expenses. The general rule imposes onerous requirements on the employee to show that the expenditure was one for the purposes of his employment.

There are currently some specific questions arising on expenses due to the coronavirus (COVID-19) outbreak, particularly in relation to home working, see the Homeworking and other expenses and coronavirus (COVID-19) guidance note.

The general rule

The employee is entitled to a deduction from earnings for an expense if the expense satisfies the following tests:

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