We look at employment expenses and the related tax treatment. If you are an employee, you may incur certain business expenses yourself. The tax treatment depends on whether your employer pays or reimburses you for them and whether they relate to doing your job.
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Employment expenses are expenses that you incur, or your employer incurs on your behalf, in the performance of your work or your employment duties.
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.
So, 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 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. We explain more about this on our page Employment expenses: travel.
Employer paid or reimbursed expenses
If you are an employee, your employer might pay or reimburse your employment expenses.
If your employer pays for or reimburses your employment expenses, you cannot get tax relief, because you have not personally incurred any expense. Instead, provided the expenses are allowable expenses, they should be paid to you with tax and NIC relief given automatically. In addition, your employer does not need to report the expense payments to HMRC and no further action needs to be taken.
Certain paid or reimbursed expenses are automatically exempt from tax and NIC provided they qualify and are not part of a salary sacrifice arrangement. This effectively means that employers do not have to declare paid or reimbursed expenses to HMRC and there are no tax or NIC consequences for you or your employer.
Expenses qualify if they are of a type that would otherwise be deductible in the hands of an employee – see below. It can also apply to subsistence expenses paid or reimbursed during the course of business travel where the employer pays them at scale rates - provided they check that the business travel has been undertaken.
Some expenses are exempt from tax/NIC under different rules if paid or reimbursed by an employer – for example, business mileage or personal incidental expenses if staying away from home on business.
If your employer does not pay or reimburse your expenses, you may be able to claim certain expenses as a deduction against your employment income and get tax relief as long as you are a taxpayer.
There are various rules governing the tax treatment of deductible employment expenses.
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 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 do not get any relief for these expenses if you are not a taxpayer.
Even if tax relief is available, no National Insurance relief is available.
Types of expenses
- 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, a member of the public would 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’).
- Other tax-deductible expenses
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 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.
- Working from home
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, etc. HMRC allow a tax- and NIC-free flat rate reimbursement of up to £6 a week (from 6 April 2020 and £4 per week from 6 April 2012 to 5 April 2020) if this is easier than having to work out actual amounts. Business telephone calls can be reimbursed on top of this. See below for information on internet costs.
Costs that would be incurred regardless of whether you worked at home, such as mortgage payments, water rates or council tax, are excluded.
However, if your employer does not reimburse you for any household expenses, you can get tax relief for part of your household running costs if you are ‘required’ to work from home – that is, employed on the basis you work from home or have no choice but to work from home.
This could apply to you if it is written into your contract that your place of work is your home, or if you must work from home because your employer does not have available office space.
In response to the coronavirus pandemic, HMRC confirmed they would accept the need to self-isolate and the national lockdown rules as meaning that you were ‘required’ to work from home for the purpose of meeting the rules. If your employer could not always accommodate you at the office (even though it was open) for reasons such as social distancing, this would also appear to be covered under ‘required’. 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 £6 a week (£4 per week from 6 April 2012 to 5 April 2020) as a flat rate expense. There is more information on GOV.UK.
As an easement, in 2020/21, 2021/22 and 2022/23, even if you only worked from home for part of the year due to the coronavirus pandemic, we understand that you can claim £6 a week for the full tax year (so a deduction of £312 for each tax year).
Note that even though this easement remained in place in 2022/23, the lifting of coronavirus restrictions meant fewer people were likely to be eligible to claim for any part of the year as they weren’t ‘required’ to work from home. Therefore, if you were working from home more regularly during 2022/23 but this was your choice, you won’t be able to claim the tax relief from 6 April 2022.
If you have recently used a tax refund company to help claim a working from home tax refund, the paperwork that you signed may mean that they were able to collect other tax refunds due to you. You can read more information about this on our page Tax refunds.
- Energy costs
HMRC does not provide exact guidance on how a calculation of energy costs should be done – but to be fair and reasonable, HMRC would probably expect you to take into account your usage, the proportion in terms of area of the home and how long it is used for work purposes as compared to any other use.
Example: energy costs
For example, you have 5 rooms in your house and use one as a home office for 8 hours a day (your family use it to watch TV in the evenings). Your gas and electricity bill for the year is £4,000. Your starting point would be £800 (£4,000 divided between the 5 rooms in your house). If you work full time, you typically have 230 workdays in a year (365 less weekends and holidays) so divide 800 by 365 and then multiply it by 230 to get closer to your actual annual work expense (£504). To take into account the room is used for a few hours each evening for your family to watch TV, you would further prorate it by 8/10 hours (say), giving you £403. This is the amount of the expense on which you would claim tax relief.
- Home working arrangements
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 £6 per week (£4 per week from 6 April 2012 to 5 April 2020) 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.
- Informal home working
If an employee only works at home informally/occasionally, no relief is available for expenses, whether reimbursed or not.
- Internet costs
So far as internet costs are concerned, there is a difference between someone who already has broadband before starting 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 £6 per week flat rate amount, previously £4 per week) 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.
- Other tax implications
If you work from home, you may expose your home to business rates rather than council tax, although this is unlikely if there is just minor ‘business’ use.
If you work from home, there may be an impact on the eligibility of your home for private residence relief for capital gains tax. HMRC have guidance on this. Note that if you use a room for both business and private purposes, this will not affect the availability of capital gains tax relief.
You will find information on what travel expenses you may be able to claim as tax deductible if you have to travel for work while you are based at home on our page Employment expenses: travel.
- Office equipment
In general, you cannot claim tax relief from HMRC if you buy home office equipment to use while you are working from home, such as an extra computer screen, or a desk and office chair. HMRC will not allow tax relief for these items as part of an expense claim. You may be able to claim capital allowances via a tax return in some circumstances.
The reason is that expenses you incur in connection with your job have to meet a test to qualify for tax relief. This test is that the expense is incurred ‘wholly, exclusively and necessarily in the performance of your duties’.
The part in bold above stops you from getting tax relief via an expenses claim for buying a desk or chair, for example. You may have bought these items to put you in a position to do your job, or – quite literally – a better or more comfortable position to do your job. This is the subtle but important difference – whether the purchased item enables you to do your job, rather than the expense being incurred while doing your job.
Things like printer cartridges and paper are different, as these are items you use while doing the job itself. For example, your work might involve writing a letter that you need to print out and post. The cost of the ink, the paper, the envelope and the stamp are all necessarily incurred by you in doing the job. These items would normally be reimbursed by your employer, but if they were not, you could make a claim for tax relief.
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 £6 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 £6 a week flat rate amount, if easier).
Of course, instead of claiming the £6 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 £6 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.
Claiming tax relief
You can find our guidance on how to claim tax relief for your expenses on our page PAYE tax refunds.
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 allowance, then unfortunately you cannot obtain any tax relief.
National minimum wage interaction
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 page National minimum wage or in the HMRC technical manual.
The Universal Credit Regulations allow unreimbursed employment expenses to be deducted from income for UC purposes, so you should let DWP know about these.
To be deducted from income for UC purposes, expenses must follow the rules for tax purposes. They therefore include expenses ‘wholly, exclusively and necessarily’ incurred for the job, professional fees and subscriptions paid to an organisation approved by HMRC and travel and subsistence expenses.
However, claimants should be aware that DWP normally use earnings information received by HMRC from employers (called real time information) to set awards of UC. This information will not take account of unreimbursed expenses amounts. Claimants will therefore need to tell their UC work coach or case manager about them so that revised earnings amounts can be used.
Find out more if you are a tax credit claimant on our specialist website, RevenueBenefits.
We look at the relationship between unreimbursed expenses and carer’s allowance on our page Carer’s allowance.
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.