Deductions & Exemptions

Expenses incurred by an employee are deductible from tax if they are wholly, exclusively, and necessarily incurred in the performance of employment. This test is quite strict and limiting. Further categories of expenses are deductible. Contributions to an occupational pension scheme, if deducted by the employer, are up to limits and subject to conditions. Subscription to certain professional bodies. Donations under a payroll giving scheme. Travel.

Travel and subsistence expenses necessarily incurred in the performance of employment are allowable. Generally, travel to and from work is disallowed. Travel and subsistence costs by an employee who has no normal place of work when traveling between home and the particular site or locus are allowed, as are traveling by way of business journeys that start from home. Travel and subsistence by an employee who has accounted for a temporary place of work for less than 24 months.

Entertainment expenses are not generally allowed. If an employer reimburses an employee or pays a specific entertainment allowance, it may be offset against entertainment expenses of the employee provided they are exclusively, necessarily, and wholly in the performance of the employment duties.

There are a number of exemptions, including the following:

• Free and subsidized canteen, party functions where the cost is less than £150 per head, car parking space, taxi when the employer occasionally requires working until at least 9 p.m., up to £60 a year, payment of the cost of the journey home if traveling in a shared car under a regular shared car or sharing arrangement.
• Work buses with a capacity for nine or more. Subsidies to public bus service, bicycles, and safety equipment loaned to employees.
• Contribution towards a household, additional household costs by employees who work at home. Approved mileage allowance, payment of incidental expenses when the employee works away from home overnight on a business trip up to £5 per night or £10 per night abroad. Reasonable removal expenses up to £8,000 when the employee first takes up employment. Reasonable gifts in a personal capacity, non-cash gifts up to £250 in a year where they are not in recognition of employment.
• Awards up to £5,000 under a staff suggestion scheme.
• A non-service, non-cash awards, not more than £50 per year of service, provided there has been at least 20 years’ service and no previous award within the last 10 years.
• Work-related training courses for an employee and payments up to £15,480 per year to an employee attending a full-time course in a recognized educational establishment. Provision of training, retraining course for employees who will be leaving employment within the last 10 years or past employments, employees who have left in the previous year.
• Provision of one mobile phone for employee use. Provision of job-related living accommodation, provision of workplace childcare supports or recreation facilities up to £55 per week for childcare if contracted with an approved childminder. This is reduced for higher-rate taxpayers.
• Provision of lower-interest or interest-free loans, if the loan is for a type that qualifies for tax relief.

Employees who use their own vehicles may receive mileage allowances below HMRC approved mileage payments without tax liability.