Produced by Tolley

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

  • Expenses
  • Expenses introduction
  • Expenses ― types and guidance
  • Tax considerations for expenses
  • Reporting requirements for expenses
  • PAYE settlement agreements (PSAs) and expenses
  • PSAs
  • Recording expense payments
  • Capital allowances
  • Machinery
  • More...

Expenses introduction

The main types of payment made to employees are pay, benefits and expenses. The guidance notes within this sub-topic deal with expense payments made by the employer as well as the tax treatment of expenses met by the employee.

Depending on the nature of the expenses, either met by the employer or reimbursed to the employee, there are reporting requirements to HMRC as well as potentially both tax and NIC liabilities on those amounts.

Due to the coronavirus (COVID-19) outbreak, new rules and guidance were introduced, including those in relation to expenses in specific circumstances such as homeworking ― see the Homeworking and other expenses and coronavirus (COVID-19) guidance note.

Expenses ― types and guidance

Typically, the most common types of expenses relate to items such as business travel and subsistence. However, there is a large range of expenses which employers reimburse to employees.

Each different type of expense attracts a tax and NIC treatment as well as an associated reporting requirement. A useful guide with details on the tax and NIC treatment as well as the reporting requirement for each expense is provided online at A to Z list of expenses and benefits.

Tax considerations for expenses

Generally, all amounts provided to employees are taxable, but the employee may be able to claim a deduction in respect of expenses incurred, whether funded by the employer or not. If the amount of the deduction is the same as the amount paid by the employer, the expense payment is effectively non-taxable. There are detailed rules outlined in legislation and case law which determine whether an amount is deductible.

For employees, the general rule for the tax treatment of expenses is in ITEPA 2003, s 336. This, with examples, is discussed in detail in the Business expenses ― general rule guidance note.

The legislation includes specific rules on the tax treatment of certain expense types. The Travel expenses, Subsistence expenses, Incidental overnight expenses, Overseas business expenses, Fixed deductions for expenses and Round sum allowances

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