Payroll insight
Employee expenses
The types of expenses payments being paid, and the associated tax implications for employment tax purposes, have evolved over the years. Justine Riccomini, head of taxation (Scottish Taxes, Employment and ICAS Tax Community), ICAS, discusses
T he trickier aspects of expenses simple. First, make an objective distinction between private and business, then decide which type of expense or benefit it is. From there it is possible to allocate the correct treatment, if indeed no exemptions or reliefs are due. What could possibly go wrong? Private or business? Making the initial decision as to whether an item of expenditure is ‘business’ or ‘private’ is fundamental to ascertaining the correct income tax and National Insurance contributions (NICs) treatment of that item. Usually, the expenses policy of the business stipulates what can and cannot be paid, and how this translates into either a taxable or non-taxable receipt for the employee. Anyone looking for guidance on this should first consult HM Revenue & Customs’s (HMRC’s) booklet 480 (http:// bit.ly/2H7HItt) which deals with expenses and benefits, and booklet 490 (http:// bit.ly/2JoFHL8) which deals with the and benefits in kind can catch out employers, but the key is to keep it
treatment of travelling and subsistence expenses.
rule: certain expenses are eligible for tax deduction, making them partially or wholly free from income tax. In some cases, where the employee is not charged to tax on an expense, the value of the expense is instead taxed on the employer. More information on this is set out below. Very few employees are exempt from the benefits code, although certain categories, such as lower paid ministers of religion are, as detailed in chapter 8 of ITEPA. Exempt items of expenditure If any payment of expenses whatsoever is made to an employee by reason of their employment, this counts in the first instance towards their pay for employment tax purposes under section 70 of ITEPA, unless covered by an exemption or it has already been subject to tax elsewhere. There is a long list of exempt payments and the best place to find these is by reading the relevant section of HMRC’s booklet 480, which is updated annually.
Who is taxable or exempt? The Income Tax (Earnings and Pensions) Act 2003 (ITEPA) charges employment income to income tax. ‘Employment income’ includes salary, wages, fees and other emoluments from an employment, including amounts which arise under what is known as ‘the benefits code’. The benefits code takes account of amounts which are not ‘earnings’ but nevertheless count as employment income, such as expenses and benefits provided to directors and employees. Section 336 of ITEPA details the general ...can be classified as ‘trivial’ if they cost less than £50 to provide...
Note that items which are normally regarded as taxable benefits can be
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| Professional in Payroll, Pensions and Reward |
Issue 51 | June 2019
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