Employment Tax

Cost of living allowances, other expenses and benefits

Produced by Tolley in association with Sarah Robert of James Cowper Kreston
  • 22 Mar 2022 12:26

The following Employment Tax guidance note Produced 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
  • Detached duty claim
  • What can be included in the deduction?
  • Relocation expenses
  • Expenses ― dispensations
  • Benefits
  • General principles
  • Cost of living allowance (COLA)

Cost of living allowances, other expenses and 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.

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

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