There are a number of expenses employees may incur when doing their job. Broadly tax relief is available when expenses are incurred ‘wholly, exclusively and necessarily in the performance of the duties of the employment’(HMRC).

The general rule is that a deduction from earnings is allowed for an amount if:

(a) the employee is obliged to incur and pay it as holder of the employment, and
(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment

Expenses which put an employee in a position to do their job (such as the cost of ordinary commuting) are not eligible for tax relief.

There are also provisions for relief for specific expenses, such as professional fees and subscriptions, and travel and subsistence.

When employers pay for or reimburse expenses that are eligible for tax relief, the payment is not taxed.

For example, if an employee pays for a train ticket to travel from their permanent office to another office for a business meeting, and their employer reimburses the cost of the train ticket, the reimbursement is not liable to income tax or National Insurance contributions.
Sometimes employers may provide employees with round sum cash allowances to cover potential expenses. For example, employees may receive a ‘travel allowance’ in case they need to travel for business trips, these cash allowances are taxed in the same way as other income.

How to reimburse an employee

When employers do not reimburse expenses that employees have incurred directly, this can be deducted from an employee’s taxable income.
• Through employees monthly pay
• Employees can claim directly to HMRC after the end of the tax year, claiming tax relief at their marginal tax rate

When paying or reimbursing qualifying expenses in full, employers do not need to apply to HMRC for agreement to do so, they need only satisfy themselves at the time of making the payment that the expense would be fully deductible (HMRC EIM30210).
This is a process that the employer can undertake in real time.

Commonly claimed expenses:

• business travel and associated expenses
• professional fees and subscriptions to professional bodies
• stationery for business use only
• telephone charges for business calls
• household expenses in the limited circumstances where an employees’ home is a workplace