Tax Guide for Employees guide
You may be aware that other people are claiming tax relief for certain work expenses and want to follow suit. You may have received advertising from a business claiming to be able to get a tax refund for work expenses.
You may have incurred work-related expenses and be hoping to reduce the cost by getting a tax refund.
Employees may be due tax relief for work expenses, but the rules are very restrictive. They require that:
1. the employee is obliged to incur and pay the expenses as holder of the employment, and
2. the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
These terms are interpreted very restrictively by HMRC. For example, they would normally expect an expense to be necessary for every employee undertaking a particular job, not just necessary for one particular employee.
Relief may be available for professional subscriptions, business mileage in the employee’s car – when this is reimbursed at less than the HMRC approved rates – business travel and accommodation and other work costs.
In some cases, employees may be given an allowance for working from home, but only where they are required under their contract to work from home.
There are a number of hurdles to pass in order to get tax relief on work expenses for an employee. In particular, it is difficult to argue that an expense is necessary if it is not reimbursed by the employer.
For some occupations there are agreed ‘fixed rate’ tax deductions. These can cover uniforms, tools etc. Other than this, employees can claim tax relief for work expenses on form P87, so long as the total gross amount of the claim is no more that £2,500.
Sometimes HMRC will give relief over the phone. In this case, total expenses must be no more than £1,000 (or up to £2,500 for professional subscriptions). For details see – https://www.gov.uk/tax-relief-for-employees/how-to-claim#2 .
Above these limits it would be necessary to submit a self assessment tax return to make the claim.
What might go wrong?
Claiming work expenses is an area which needs care. There are a number of possible problems including:
1) You may make a claim for work expenses, only to find that HMRC later rejects it and asks for some of the refund back.
Be wary of firms offering to get large refunds for you. They may be claiming for items which are not tax-allowable. You could be left with a bill from HMRC, increased by interest and penalties; on top of the firm’s bill for the incorrect refund.
2) If your claim is for expenses of over £2,500, you will need to submit a self-assessment tax return.
Once you are enrolled in self-assessment, all the self assessment penalty rules apply to you. If you do not send your self assessment return in on-time you will be fined. If you decide you no longer want to claim tax relief on work expenses in this way, you will need to ask HMRC to take you out of self assessment.
If you simply ignore tax returns that are sent to you, you will face non-refundable penalties of £1,600 or more a year, plus the possibility of an estimated tax demand. See Late tax returns
On the TaxAid website see Employee expenses. This section has links to the HMRC website.