Tax relief on employee expenses.

If you’re an employee, you might sometimes pay for things you need to do your job. This might be clothing, equipment, tools, or other costs your employer doesn’t cover.

In some cases, you can claim tax relief on these costs. This means you may get some tax back or pay less tax overall.

What are the rules?

The rules on what you’re able to claim tax relief on are strict. 

There are two main rules that have to be followed:

• The employee is obliged to incur and pay the cost. That means you must have needed the item you bought, and you had to pay for it yourself.
• The amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. That means what you paid for is only for use in your job and nothing else.

HMRC has issued guidance to their staff on how these rules should be interpreted, which is based on decisions made by the UK Courts.  Their guidance says that:

• The expense must be necessary for every employee that holds that job. Individual circumstances are not relevant.
• The expense must be made only for the purposes of the job itself and not for any related activities, however important those may be.
• The expense must be exclusively for that specific employment, it must not be partly for another role or job, a future job or for personal reasons.
• The expense claimed cannot exceed the income from the job.

What if my employer covers these costs?

If your employer paid for the expense or paid you back (reimbursed you) then you can’t claim tax relief on the expense.

How do I make a claim?

You can make a claim for tax relief for employment expenses by post using form P87.

Some claims can be made online. You can find guidance on the HMRC website.

If you are in Self Assessment.

If you file a Self Assessment tax return, you will need to make the claim in your tax return.

Expenses over £2,500.

If you don’t currently file a tax return and your expenses claim is more than £2,500 HMRC will need you to file a Sell Assessment tax return.

How do HMRC investigate the claim?

HMRC process repayment claims without investigating them. They may check the claim in detail later. If they think your claim isn’t fully justified, you will have to return the tax relief you claimed and may be charged interest. 

Is there a time limit on the claim?

The claim must be made within four years of the end of the tax year in which the expense was paid. 

Should I use a tax refund company?

Tax refund companies offer to claim expenses for you and charge a fee which is usually a percentage of the refund you get.

However, HMRC has issued a warning about using companies like this. They’ve found that some of these firms are making inflated or incorrect claims, which can lead to HMRC asking you, the taxpayer (not the company) to pay the money back.

HMRC have advice on how to make your claim yourself so that you can keep 100% of the refund.

We also have more information about tax refund scams.