What if I incur expenses in relation to my job?
If you are an employee and you incur certain business expenses yourself, that your employer does not reimburse, you might be able to get tax relief. This only applies to business expenses that relate to doing your job. Here we discuss the relief.
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. This is why they are sometimes called ‘tax deductible’ or ‘allowable’ expenses. You may have to make a claim in order to obtain this tax relief. Below we consider different types of tax deductible employment expenses and explain how you can claim tax relief on these. Because the relief operates by reducing your taxable income, you can get no relief for these expenses if you are not a taxpayer.
Please note that even if tax relief is available, there is no National Insurance relief available.
If your employer pays for or reimburses your employment expenses, you cannot get tax relief in the same manner, because you have not personally incurred any expense. See below for how you may need to claim some relief where expenses were paid or reimbursed to you before 6 April 2016.
What types of expenses can I get tax relief for?
The rules for claiming expenses against your employment income are very strict. The general rule is that they must be incurred ‘wholly, exclusively and necessarily’ in the performance of your duties. This means that any person performing your role would have to incur the expenses and that the expenses are incurred while performing your duties rather than putting you in the position where you are able to perform those duties.
Thus the cost of clothing would not normally qualify for tax relief even if you have to wear clothes to work that are different from those you would normally wear. But if you need to wear special clothing that is not supplied by your employer, for example specialist footwear in the construction industry, you may be able to claim tax relief on the cost – see the section below.
On the same basis, travel costs from home to work would not normally count as expenses you can get tax relief on, although there are exceptions to this.
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 in 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 GOV.UK (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 UK 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 UK 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 specifically allowed under the law.
Professional fees and subscriptions 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 GOV.UK.
Employers can make tax and NIC free payments to an employee in respect of reasonable additional costs incurred for working at home, for example, gas, electricity, telephone, internet. HMRC allow a tax- and NIC-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.
Costs that would be incurred regardless of whether you worked at home, such as mortgage payments, water rates or council tax, are excluded.
However, you can also 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, 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 GOV.UK.
If you are not required to work from home but work regularly from home by arrangement with your employer, this is called a home working arrangement. These arrangements need not be in writing and need not involve all employees, but the tax rules that apply here are different to those that apply when an employee is recruited specifically on the basis that they will work from home.
Where there is a home working arrangement, and you are incurring additional household expenses, your employer can reimburse you on a tax- and NIC-free basis for any reasonable additional household expenses that you pay out. HMRC allow a tax- and NIC-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 GOV.UK.
However in these home working arrangement situations, the exemption only applies to payments your employer makes and you cannot claim tax relief for any unreimbursed expenses by deducting them from your income.
You can read more about home working arrangements in HMRC’s technical manual.
If an employee only works at home informally/occasionally, no relief is available for expenses, whether reimbursed or not.
So far as internet costs are concerned, there is a difference between someone who already has broadband before entering into a new employment which requires them to work from home or starts a home working arrangement and a person who subscribes for broadband afresh when they start the job/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 on a tax/NIC-free basis (or the £4 a week flat rate amount) provided the internet is then used mainly for business purposes, with insignificant private use.
If you are required to work at home, you can claim tax relief if your employer does not reimburse the allowable costs. If you work at home under a home working arrangement, you cannot claim tax relief.
Here are some examples to help make all of this clearer:
Jane did not have a computer when she took up a new employment that required her to work at home so 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 her employment 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 (or pay her the £4 a week flat rate amount). Note that if her employer does not reimburse the costs Jane can claim tax relief on the broadband costs as her employment requires her to work at home (or she can claim the £4 a week flat rate amount, if easier).
Of course, instead of claiming the £4 a week flat rate amount, Jane could claim ALL of the additional expenditure she incurs by working at home, although that might mean significant record keeping. If those extra costs were, say, £20 per month plus the additional broadband costs, her employer could reimburse her £45 per month tax and NIC free. If her employer did not reimburse these costs, she could claim tax relief on these costs.
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 for the broadband 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, that is, 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- and NIC-free reimbursement of the whole of the cost of the second subscription or pay him the £4 a week flat rate amount. However, as Jake is working at home under a home working agreement, he cannot claim tax relief on the cost of this second subscription or any other additional household expenses if his employer does not reimburse the costs.
You can find our guidance on how to claim tax relief for your expenses on our page How do I claim a refund if I have spent my own money on employment expenses?.
An important point to be aware of is that if you are not a taxpayer, that is, because you do not earn more than the personal allowances, then unfortunately you cannot obtain any tax relief.
Since 6 April 2016, the business expense rules have been simplified and the deduction/dispensation approach has been replaced with an exemption. This meanings your employer should not report any such expense payments to HMRC, provided they are valid business expenses. Accordingly you need take no further action.
For tax years up to and including 2015/16, if your employer paid or reimbursed your expenses (business or non-business), the starting point was that there were various P11D reporting requirements which meant that they counted as taxable income on you, unless your employer held a dispensation (see below).
To the extent that they were business expenses, you would then be able claim a deduction from your earnings to cancel out the tax charge; or your employer could apply to HMRC for a dispensation to remove the obligation for them to report (and for you to subsequently deduct) the expenses.
You can read more about this in our news piece Seeking tax relief for job related expenses?.
Unreimbursed expenses and the minimum wage and benefits
If your employer does not reimburse your expenses, it is worth noting that if your hourly wage is on or around the minimum wage, there is an element of protection written into the national minimum wage rules. This applies where an employee incurs expenses in connection with employment that are not reimbursed by an employer. Essentially the rules say that where an employee incurs expenses in connection with employment that are not reimbursed by an employer the cost is not allowed to reduce their wages below the minimum wage. You can find more information on our minimum wage page or in the HMRC technical manual.
If you are on universal credit (UC) or tax credits and incur unreimbursed expenses as part of your job, then make sure you tell DWP or HMRC about them, as they could reduce your earned income for UC or tax credits purposes, meaning a higher award.
We also look at the relationship between unreimbursed expenses and carer’s allowance in our disabled people and carers section.
There is more information in HMRC's employment manual on GOV.UK about employment expenses incurred by employees and their reimbursements.
In addition, HMRC provide details on GOV.UK of how to get allowances and reliefs – the method can vary depending on whether or not you complete a Self Assessment tax return.
HMRC's Employment Income Manual contains technical details of deductible expenses for employees, including an A to Z guide – see EIM32400.