Payroll
include the following: ● buying newspapers ● paying for laundry ● phoning home. But personal incidental expenses are not qualifying travel expenses. The employee does not have to incur these costs to be able to carry out their duties, and as a consequence they are not exempt from tax and NICs. If, however, the employer pays an allowance for such incidental overnight expenses, there is a specific statutory exemption which can apply meaning that tax is not payable if the allowance does not exceed the statutory limit. The maximum amounts of incidental overnight expenses that an employer may pay tax free are: ● £5 per night for overnight stays in the UK, and ● £10 per night for overnight stays outside the UK. If a payment is made that exceeds these limits, the whole of the payment becomes taxable and not just the excess. But it is important to remember that the limit is applied to the whole of the period that the employee spends away from home and not to each night separately. Where the employer has a policy that requires the employee to pay back any amount received that exceeds the limit, and repayment is made within a reasonable time, the payment to the employee should be treated as not exceeding the tax-free limit. If any of the overnight expenses reimbursed by an employer aren’t exempt and exceed the £5 or £10 threshold, they must be reported via the P11D return, as well as being liable to pay as you earn income tax and class 1 NICs through the payroll. Other incidental expenses Whilst strictly speaking the term ‘incidental expenses’ only refers to travel expenses, in reality employees do often incur other expenses which one could consider incidental, even if not in the strict definition of the term. Examples include the following. ● Working at home – The complete opposite of the true definition of incidental expenses, workers can also incur expense when working at home. Workers are able to claim tax relief for some of the extra expenditure incurred when working from home on a regular basis, but this is only
when employees have to work at home – they cannot claim tax relief if they choose to work from home. But it can be tricky to separate out what can be claimed for, as workers can only claim for expenses which are directly associated with work, such as business telephone calls or the extra cost of gas or electricity for that work area. Expenses for personal as well as business use, such as rent or broadband access, cannot be claimed. ...either claim the actual amount spent – verified by the receipt – or an agreed fixed amount... But once again, there is a statutory allowance – £4 per week (or £18 per month) – which employers can pay to cover additional costs which is not taxable. ● Professional fees and subscription s – An employee may claim tax relief for annual subscriptions paid to certain approved professional bodies or learned societies, where the body’s activities are relevant to the duties of the employment. A deduction may also be claimed for certain statutory fees paid to such bodies by an employee as a condition of carrying on the employment (for example, as a registered veterinary surgeon or practising solicitor). The list of approved bodies, ‘List 3’, is available at http://bit.ly/2Fcibxv. Tax relief is also available where an employer pays or reimburses the fee for subscribing to the Disclosure Barring Service update service, or fees for criminal records certificates when the subscription
to the update service is active. Relief is not available for fees for criminal records certificates paid or reimbursed by an employer where the individual does not subscribe to the update service, as these payments would not be treated as taxable benefits. These subscriptions must still be declared in the P11D return unless they are covered by an exemption. ● Uniforms, work clothing and tools – Employers may also be able to reimburse, without deducting tax or NICs, expenses incurred by employees for: ❍ repairing or replacing small tools they need to do their job (for example, scissors or an electric drill) But note the important distinction: this is only for the repair and maintenance of existing equipment. Tax relief is not available on the initial cost of buying small tools or clothing for work. Employees can either claim the actual amount spent – verified by the receipt – or an agreed fixed amount (a ‘flat rate expense’ or ‘flat rate deduction’). There is a list of industries and the appropriate ‘flat rate expense’ on GOV. UK. n In summary Whenever employees are claiming reimbursement for costs incurred, especially incidental expenditure, it is important to check whether or not they attract tax relief; and the rules are not quite so straight forward as you would think. The CIPP has a one-day training course, ‘P11D, expenses and benefits’, which will give you all the information you need. ❍ cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).
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| Professional in Payroll, Pensions and Reward |
Issue 57 | February 2020
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