Expenses

Produced by Tolley
  • (Updated for Autumn Budget 2021)

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

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.

The COVID-19 outbreak also identified a concern that the Government only had limited authority to make minor alterations to secondary employment tax legislation (statutory instruments) in these circumstances ie without having to enact new primary legislation. As a further consequence, the Autumn Budget 2021 Overview of tax legislation and rates (Oct 2021) confirmed the Government’s intention to introduce additional powers within Finance Bill 2021/22. These powers are intended to permit the Government to make temporary modifications of taxation of employment income covering periods of up to two years, in the event of future disasters or emergencies of national significance arising.

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

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