Expenses which are reimbursed

Most of the expenses you incur at work as an employee are paid for by your employer. Other work expenses – particularly travel and accommodation expenses – are reimbursed by your employer.

From April 2016, the system is being simplified, and HMRC will usually accept that business expenses which are reimbursed by your employer are not taxable benefits for you.

When an expense is reimbursed, HMRC has to be satisfied that the expense is allowable for tax purposes, otherwise the reimbursement from your employer is treated as additional taxable income.

Example: Alison is a sales manager. She is asked to attend a special sales event in the evening. She pays a babysitter to look after her children. The employer reimburses her for the cost of the babysitter. HMRC would not consider that the expense was allowable. It would not have been necessarily incurred by any holder of the office of sales manager. Tax would therefore be payable on the reimbursement.

(See http://www.hmrc.gov.uk/manuals/eimanual/EIM31648.htm)

reimbursed expenses, general rules and special cases

Different rules apply from 6 April 2016. The new system gives a tax exemption for expenses which would be tax-deductible under normal rules. You can find the details here:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30210

Up to 5 April 2016, many employers reimbursed work related expenses at rates agreed with HM Revenue and Customs to produce no tax liability.

Where a specific agreement existed between HMRC and the employer this was called a dispensation. See http://www.hmrc.gov.uk/manuals/eimanual/EIM30051.htm.

Some reimbursed expenses are not taxable under special rules.

These include provisions of bicycles, parking, and nursery provision for example. Specific conditions apply so care is needed. You can find a list of the expenses on the HMRC website at http://www.hmrc.gov.uk/manuals/eimanual/EIM21241.htm. There a special rules on employer supported childcare – see http://www.hmrc.gov.uk/manuals/eimanual/EIM22012.htm .

Tax-free childcare

A new system of childcare funding, called ‘tax-free childcare, is being introduced.  Existing employer supported childcare schemes will be closed to new entrants. The new scheme involves parents making payments into a designated account. The Government tops up the account to a maximum of £2,000 per child on an investment of £8,000 by the parents (giving the equivalent of 20% tax relief). Some more information can be found on the Gov.uk website.

You may need to take advice on your specific circumstances, or look at the examples on the HMRC website (http://www.hmrc.gov.uk/manuals/eimanual/EIM31610.htm).