Employment Tax

Expenses and benefits matched by allowable deductions

Produced by Tolley
  • 12 May 2022 14:01

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

  • Expenses and benefits matched by allowable deductions
  • Overview
  • Details of the exemption
  • Scale rates
  • Checking systems
  • HMRC published or ‘benchmark’ scale rates
  • Bespoke scale rates
  • Cases where the exemption does not apply

Expenses and benefits matched by allowable deductions

Overview

Where an employer pays or reimburses expenses to an employee, a tax charge would normally arise under ITEPA 2003, s 72 and NIC would also be due.

Similarly, when an employer provides the employee a benefit, a tax charge would normally arise on the benefit under the provisions of the benefits code in ITEPA 2003, ss 62–226E (Pt 3) and NIC would be due.

Where an expenses payment or benefit is matched by an allowable deduction from the employee’s earnings, no charge to tax or NIC arises and the employer has no reporting requirements.

The employee can only claim a deduction in respect of that expense if their expenditure exceeds the amount met or reimbursed by the employer.

See Simon’s Taxes E4.707B.

Details of the exemption

In the case of expenses or benefits paid or reimbursed by the employer to the employee, the exemption removes any charge to tax or NIC in cases where the employee would be entitled to a deduction from earnings in respect of the whole expense or benefit in question. There is no need for the employer to include exempt expenses on a P11D, on payroll, or any other PAYE report.

See Example 1 and Example 2.

For more detail on employees’ expenses that qualify for a deduction from earnings, see the Business expenses ― general rule, Travel expenses and Subsistence expenses guidance notes.

The exemption is not available where the expenses in question are paid or reimbursed as part of a salary sacrifice (or similar)

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