The Chartered Institute of Taxation (CIOT) is calling on the Government not to abolish income tax relief for legitimate work-related expenses for which they are not reimbursed by their employer.
The Government published a call for evidence in March, seeking to understand why claims for tax relief on expenses which employers do not reimburse to their employees increased 25 per cent to £800 million per annum between 2009-10 and 2014-15.1
The CIOT believes that a key reason for the increase in unreimbursed claims by employees is that employers have tightened their belts in recent years in response to a more difficult economic environment. This does not, however, mean that those non-reimbursed expenses should not receive tax relief, says the tax body.
For example, for cost control reasons employers may pay a limited cash allowance to employees to cover their travel & subsistence away from their normal workplace. This will be taxable on the employee who will need to make their own claim for tax relief. HMRC will record this as an unreimbursed business expense albeit in fact it simply reflects the employee’s legitimate claim for tax relief on the expense he or she has incurred.
Colin Ben-Nathan, Chair of CIOT’s Employment Taxes Sub-committee, said:
“While it may be tempting for a government to look at the cost to the Exchequer of tax relief on employment expenses and limit relief where the employer has not directly reimbursed the expense, we think that this would be the wrong response and that tax relief on non-reimbursed expenses should be retained.
“There may be many reasons why an employer does not reimburse, or only partly reimburses, the out-of-pocket expenses an employee incurs. This does not mean that the expense was not genuinely incurred by the employee in performing the duties of their employment. All workers should have the right to claim a deduction for the expenses incurred while fulfilling their work obligations, particularly where the employer chooses to pay a taxable cash allowance to cover employee expenses or where reimbursement is otherwise limited for cost control reasons.”
While full reimbursement is clearly preferable, tax relief on employment expenses at least returns a fraction (20 per cent, 40 per cent or 45 per cent, depending on whether the employee is a basic, higher or additional rate taxpayer) of the cost of the expense to the employee.
Colin Ben-Nathan added:
“The CIOT’s survey of members indicates that many employees do not know that they are entitled to claim tax relief on non-reimbursed employment expenses, nor do many employees know where to find information on how to make a claim for tax relief.
“We are therefore calling on HMRC for better and easier access to appropriate information on which employment expenses are, or are not, eligible for tax relief,2 a simpler process for claiming tax relief and a better process for claiming flat rate expenses (such as uniform cleaning allowances).
“The CIOT is also recommending that the Government consider permitting willing employers to be able to give tax relief at source on non-reimbursed employment expenses by allowing them to assess expense information provided by the employee and, where they are satisfied that a tax deduction is due, reducing the employee’s taxable pay accordingly.”
Notes to editors
1. CIOT’s submission to the Treasury can be read here.
2. An example of an expense for which an employee would not be able to claim tax relief is work-related training. An employer can provide an employee with work-related training (including related costs such as books and travel expenses) and this benefit is exempt from tax (under Section 250, ITEPA 2003). Exemption also applies where the employer reimburses an employee for work-related training costs that the employee has paid for directly. But the employee cannot claim a tax deduction for work-related training costs that are not reimbursed by the employer.
3. Examples of expenses for which an employee can claim a tax deduction include:
i) Business mileage: many employers reimburse for fuel only at the lower HMRC approved company car fuel rates even where the employee is using his or her own car for work (usually because the employee has had a choice whether or not to receive a company car and chosen not to), rather than at the Authorised Mileage Allowance Payment (AMAP) rates of 45p for the first 10,000 business miles and 25p thereafter. The rules allow the employee to claim a tax deduction for the balance.
ii) Lunches when temporarily working away from the normal workplace: reimbursement is often limited to a standard rate to economise on costs even though the actual cost incurred is higher. The employee may claim tax relief for the balance.
iii) Professional subscriptions: an employer may agree to pay or reimburse the cost of membership to one professional body but not to others, even though the nature of the employment may require the employee to retain multiple memberships Again, the employee may make claim additional relief.
4. Other recommendations made by the CIOT in its response to the call for evidence include:
- A review of the differences between employed and self-employed entitlements for tax relief on business expenses, with a view to more closely aligning the income tax and NIC rules for each. For example, while an employee cannot claim relief for non-reimbursed training costs, a self-employed worker can claim relief so long as the training updates existing expertise or knowledge (but not if the course imparts new skills or knowledge unrelated to the existing business).
- A review of the tax reliefs available in respect of working from home to reflect the greater number of employees working remotely and the use of modern technology and billing processes (e.g. inclusive packages that do not allow for ‘business use’ to be itemised).
- A review of the tax-free relocation allowance of £8,000, which we consider is no longer reflective of typical relocation costs.
- A review of the current standard flat-rate tax-free allowances and benchmark scale rate payments (such as for upkeep of tools and equipment) to ensure that they remain relevant and reflective of current costs.