COMPLIANCE
Incidental expenses
Helen HargreavesMSc ChFCIPPdip, CIPP associate director of policy, outlines the scope of the tax relief and complexity of the rules
W hen employees travel on incur whilst travelling will be reimbursed in full by their employer; after all, they only incurred that expense because of their job. But it’s not quite as straight forward as that, and some might say that’s a good thing because if there was no restriction heaven knows what might be claimed! In theory, the employer is just giving the employee their own money back. If the employee spent the money in the course of carrying out their job, then there will not usually be any tax or National Insurance contributions (NICs) liability. But as we all know, theory is all well and good but when you start getting into the detail that’s when things get complicated. The rules Section 336 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) says that expenses are allowable so long as: ● the employee is obliged to incur and pay them as holder of the employment, and ● they are wholly, necessarily and exclusively incurred in the performance of the duties of the employment. Under section 337 of ITEPA, expenses business it might reasonably be assumed that any expense they
The practicalities So, what does this mean in practice? Well it means that some expenses attract tax relief, and some don’t. Tax relief is given only for ‘qualifying travel expenses’. A deduction is given for the full amount of qualifying travel expenses, which comprise: ● other associated costs, including toll fees and, where appropriate, parking fees. This means an employee travelling for work may be able to claim tax relief on the cost or money they spent on food or overnight expenses. These include things like: ● public transport costs ● hotel accommodation ● food and drink ● congestion charges and tolls ● parking fees ● business phone calls and printing costs. Employees may have other expenses too – ‘incidental expenses’ – which don’t necessarily attract tax relief. Incidental overnight expenses are personal (non- business) expenses incurred by an employee whilst travelling overnight on business. Examples of incidental expenses ● actual travel expenses ● subsistence expenses
are allowable so long as: ● the employee is obliged to incur and pay them as holder of the employment, and ● they are necessarily incurred on travelling in the performance of the duties of the employment. Essentially what this tells us is that there are several restrictions on the availability of tax relief on travel expenses. ...all well and good but when you start getting into the detail that’s when things get complicated Looking at NICs, the rules equivalent to those in ITEPA are contained in schedule 3 of the Social Security (Contributions) Regulations 2001. The schedule says that payments or contributions towards certain expenses, which the holder of the office or employment is obliged to incur and spend, are not included in the employee’s earnings.
| Professional in Payroll, Pensions and Reward | February 2020 | Issue 57 22
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