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Employee tax relief on business expenses

Most people think that their employer will reimburse any expenses they incur in relation to their work, for example business travel, business mileage in their own car or subsistence. What they don’t realise is that employers are under no legal obligation to do so.

An employer can pay you £0.45p per mile for business travel in your own car, (for the first 10,000 miles) and £0.05p per mile for each passenger who travels, without you or your employer being liable to pay any tax or National Insurance.

Whilst this is the approved rate – neither tax nor National Insurance is due on sums paid under this amount – the rate itself is only advisory. It means that employers are within their rights to pay less, say, £0.25p per business mile.

If you travel more than 10,000 business miles in your own vehicle on behalf of your company £0.25p will cover the approved rate for over 10,000 miles.  For travel between 1 and 10,000 miles you will need to claim tax relief on the difference between the amount you receive and the approved rate.

For example, if you were paid £0.25p for 5,000 business miles you can claim tax relief on the difference – £0.20p x 5,000 miles, which would mean you could get a tax refund of £1,000.00.

Examples of other employment expenses on which tax relief is available include:

  • Cleaning of your uniform – the amount varies, depending on your job, for example nurses are entitled to a £125 yearly allowance
  • Any tools you need for your job which you have personally had to pay for or repair
  • Business travel costs, for example train tickets or bus fares
  • Overnight business accommodation – you are entitled to an additional £5 allowance
  • The cost of any subscriptions to HMRC-approved professional organisations and learned societies
  • Home working – you may be able to claim some tax relief where your employer requires you to work from home

How to claim

If you think you are entitled to employee tax relief on expenses incurred in relation to your job, there are various ways to make a claim:

  • Telephone HMRC (if the amount claimed is below £1,000 or £2,500 for professional fees and subscriptions)
  • Claim online through your Government Gateway account
  • Complete a Form P87 and post this to HMRC

Bear in mind that, if you have not made a claim previously and have records to show you are due tax relief for previous years, you can make an additional claim for the four tax years prior to the current one.

It is important to keep records and receipts for expenses such as mileage, travel or subsistence, as HMRC has the right to verify your claim before making any repayment or adjusting your tax code.

If you complete a Self-Assessment tax return and have expenses you have not claimed in a previous year the process is different as any claim for this ‘overpayment relief’ must be made in writing to HMRC.

For further information on business expenses and employee tax relief contact our tax experts on 01785 243276.