What if I incur expenses in relation to my job?
If you are an employee and you pay for certain business expenses, you might be able to get tax relief. This applies to business expenses that relate only to doing your job. Here we discuss these reliefs.
Often the tax relief works by taking off the amount of the expense from your employment income. This reduces your taxable income and the tax you have to pay. These are sometimes called ‘tax deductible’ expenses. You may have to make a claim in order to obtain this tax relief. Below we consider different types of employment expenses and explain how you can claim tax relief on these.
If you pay for a business expense, but your employer reimburses you, you cannot get tax relief in the same manner. You may be able to make a claim to cancel out any tax charge caused by the reimbursed expenses.
There are two possibilities:
From 6 April 2016
Your employer should not report any such expense payments to HMRC, provided they are valid business expenses. Accordingly you need take no further action.
Before 6 April 2016
If your employer had a dispensation to pay business expenses this meant that your employer would not report the payment of expenses to HMRC, nor would you have had to make a claim for the expenses. This is a similar position to what happens from 6 April 2016. It is different because a dispensation might only have covered certain types of expenses that were reimbursed to you.
If your employer did not have such a dispensation that covered the particular business expenses that were reimbursed to you, your employer had to report payment of these expenses to HMRC. They did this by completing a form P11D, or substitute, and you would also be given a copy of the relevant information. You would then have to make a claim to cancel out any tax charge caused by the reimbursed expenses.
What tax relief is there for special tools and clothing?
The cost of normal, everyday clothing is not a tax deductible expense, even if you wear it to work. HMRC have agreed, however, that employees in a range of industries can claim tax relief on fixed amounts for the upkeep of tools or any ‘specialist’ or protective work clothes which are not paid for by the employer – these are known as flat rate expenses.
‘Specialist’ work clothes can include a uniform. To count, it must be something that clearly is a uniform. What this means is, if you were out in the street would a member of the general public recognise you as wearing a uniform? If you are required to wear clothing branded by your employer, with logos or the company name etc, this would also be a uniform; but a detachable badge would not be enough to turn ordinary clothing into a uniform.
You can find out how HMRC defines a uniform from their ‘Employment Income Manual’.
You cannot usually claim for the initial cost of buying tools and specialist or protective clothing. Instead, you can claim for their upkeep, for example, repairing, cleaning or replacing them. You should remember that even if you only use your own washing machine at home to clean your specialist or protective clothing, there is a small cost to you associated with this in terms of electricity, detergent, etc! The flat rate system is therefore useful, as you do not have to keep a record of the individual amounts you spend.
This is a relief that is often not claimed, because it is not widely publicised, but it can be very helpful for certain people, such as agricultural workers, public transport workers, labourers and healthcare workers. You can find the full list of the flat rate amounts on the GOV.UK website (within HMRC’s Employment Income Manual).
You simply claim the amount shown on the list for your type of industry or occupation (the amounts have been calculated according to the annual cost of repairs, cleaning etc. for each occupation type and have been agreed with trade unions and representative bodies). Alternatively, you can claim tax relief for the actual amounts you spend, but you need evidence of your expenses (receipts for repairs, etc.) to do this.
Even if your industry or occupation is not on the list, you may be able to claim a standard £60 allowance per year for the cost of upkeep and replacement of specialist or protective clothing. The tax reduction you get is usually 20% of the allowance, so basic-rate taxpayers can claim £12 back per year (20% of the £60 standard allowance). As you can claim tax relief going back 4 years, a basic-rate taxpayer could possibly receive a tax refund worth £48 as well as getting your tax code adjusted for the current and future years – the relief will be given automatically in your pay packets so you will not need to claim again (although you should make sure you check your PAYE coding notice carefully to ensure that the relief has been ‘coded in’).
There are several other types of tax deductible employment expenses. We explain about one specific type in this section, but if you want to see other examples, go to the GOV.UK website. In addition, you may be able to get tax relief if you incur business travel expenses or use your own car for business travel.
It is worth noting, that the rules for what is tax deductible for employees are extremely tightly drawn. Basically, the expenditure must have been necessary – you could not have done your job without incurring the expense.
Professional fees and subscriptions
These are allowable deductions if they are amounts you have to pay in order to carry on your profession. HMRC also allow annual subscriptions to certain professional organisations approved by them. You can find the list on the GOV.UK website.
You can get tax relief for part of your household running costs if you are employed on the basis you work from home or have no choice but to work from home, and your employer does not reimburse you for any household expenses.
This could apply to you if it is written into your contract that your place of work is your home, or if you have to work from home because your employer does not have available office space.
You can claim based upon a proportion of your actual household running costs, for example, gas, electricity, telephone, if you keep records of them all and the extent to which you use your home for work. However, as this can be difficult, HMRC allow a claim for up to £4 a week (from 6 April 2012) as a flat rate expense. There is more information on the GOV.UK website.
Home working arrangements and broadband expenses
If you volunteer to work regularly from home, whether part or all of the time, this is called a home working arrangement. In this case, you are likely to carry out some or all of your work online, using a broadband connection. So it is important to understand when your employer can refund your broadband costs without there being any tax implications.
Your employer can reimburse you tax free any reasonable additional household expenses that you pay out under a home working arrangement. HMRC allow a tax free flat rate reimbursement of up to £4 a week (from 6 April 2012) if this is easier than having to work out actual amounts. There is more information on the GOV.UK website.
The exemption only applies to payments your employer makes and you cannot claim any unreimbursed expenses by deducting them from your income on your tax return. Note that this differs from the treatment when an employee is recruited specifically on the basis that they will work from home.
So what exactly is a home working arrangement? It is a formal arrangement between employer and employee under which you regularly work at home carrying out at least part of your job there. These arrangements need not be in writing and need not involve all employees, but it would not apply where you just work at home informally and not by arrangement with your employer.
The rules also say you must be incurring additional household expenses by having this arrangement, which include increased charges for internet access.
These costs need to be reasonable and be incurred in connection with your job. You cannot however include any costs that would be the same whether or not you worked at home, such as council tax.
So far as internet costs are concerned, there is a difference between someone who already has broadband before entering into a home working arrangement and a person who subscribes for broadband when they start the home working arrangement.
The first situation cannot be treated as if you have any additional expenses, because you are using an existing subscription and the cost would be the same whether or not you work from home.
In the second case, you can be reimbursed a reasonable amount of the initial set-up costs, if there are any, and ongoing subscription.
If you work at home one day a week and use the internet privately for a lot of your time online shopping or downloading music etc., you should not be reimbursed the full cost. If however you make hardly any private use of the internet you could be reimbursed the full cost.
Here are some examples to help make this clearer:
Jane did not have a computer but then she started to work at home under a home working arrangement needing internet access and her employer provided her with a computer to use. Jane now subscribes for a broadband internet package, costing £25 a month. As a result of the home working arrangement she incurs an additional household expense. Jane's employer can reimburse the full £25 a month cost of the subscription without any tax or National Insurance contributions (NIC) implications.
Cara has an existing broadband internet connection used by all her family. She begins working at home under a home working arrangement and uses the existing broadband access in connection with her work. Unless Cara has had to change her broadband internet package to allow for increased usage, there is no additional household expense. Any refund of her costs by her employer is taxable as earnings.
Jake has a broadband internet connection used by all his family. When he begins working at home under a home working arrangement with his employer, he takes out a second broadband internet subscription, i.e. a second telephone line is broadband-enabled, for use in connection with his work. Jake has incurred an additional household expense as a result of the home working arrangement. His employer can make a tax-exempt reimbursement of the whole of the cost of the second subscription.
The first thing to be aware of is that in this section we are discussing claiming tax relief on expenses you have incurred in your job. If you are not a taxpayer, unfortunately you cannot obtain any tax relief.
From 6 April 2016 these are expenses that have not been reimbursed by your employer.
Before 6 April 2016 you may need to make a claim if the expenses were reimbursed by your employer and your employer has reported them on a form P11D. You will also need to make a claim if the expenses were not reimbursed by your employer.
If the expenses you are claiming are less than £2,500 for a single tax year, you can make a claim using form P87. You can claim for more than one year at a time, but you should use a separate form for each year. You have four years from the end of the relevant tax year to make a claim so you can claim expenses for the tax year 2017/18 by 5 April 2021.
If your expenses are more than £2,500 in a tax year then you need to complete a tax return to make the claim.
There is more information on the GOV.UK website about tax allowance and reliefs for employees.
In addition, HMRC provide details of on the GOV.UK website of how to get allowances and reliefs – the method can vary depending on whether or not you complete a self assessment tax return.
There is information on tax relief for household expenses of employees who are home workers, including how to claim the reliefs, on the GOV.UK website.
There is an index of professional fees and subscriptions that are tax-deductible on the GOV.UK website.
HMRC's website contains details of flat rate expenses for employees in various occupations.
There is also information on payroll giving – giving to charity through your pay – on the GOV.UK website.