Chapter 21 - Expenses of Employment

Question 1

Deductible For Expenses: The General Rule

Answer 1

Deduction is allowed under general rules if:

• the employee is obliged to incur and pay the expense
• the amount is incurred ‘wholly, exclusively and necessarily’ in the performance of duties.

Question 2

Professional Fees and Subscriptions

Answer 2

Deduction is allowed for professional fees providing the employment involved the practice of the profession to which the fee related and payment of it is a requirement of the job
Payments of annual subs is deductible on subs paid to an approved body.

Question 3

Travel Expenses

Answer 3

Allowed if necessarily incurred or attributable to the employee’s necessary attendance at any place to do their job.
Travel between home and perm workplace or a place that is not a workplace and the perm workplace is specifically not deductible
Travel to client from work is allowable.
Travel from the office or from home to a temp workplace (24 months or less) is allowable

Question 4

Overseas Travel Expenses

Answer 4

Where a UK res employee travels to and from UK on taking up or ceasing overseas employment where duties will be carried out wholly overseas, travel costs are allowable. If reimbursed by employer, it’s exempt income
Deduction is available where employer pays for or reimburses accommodation and subsistence while overseas.
If employer reimburses costs of interim UK visits, it’s allowable
Up to 2 reimbursed return journeys for spouse and children are allowable

Question 5

Entertainment Expenses

Answer 5

If incurred wholly, exclusively and necessarily, and reimbursed, it is allowable providing it has been disallowed in arriving at employer’s taxable profits.
If employee gets a round sum allowance then entertaining costs aren’t allowable

Question 6

PAYE and NIC Implications

Answer 6

Reimbursement or payment of genuine expenses is not subject to PAY income tax or NIC and doesn’t need to be on a P11D
Payments for private expenses made directly to the employee are subject to PAYE and Class 1 NIC and doesn’t go on a P11D
Payments to a supplier for a private expense arranged by the employee are reported on the P11D and subject to Class 1 NIC

Question 7

Round Sum Allowances

Answer 7

Where a RSA is clearly meant to do no more than reimburse an employee for qualifying business expenses, it’ll be exempt from tax and NIC and doesn’t need to be reported.
In any other case, it should be treated as salary and tax should be withheld under PAYE.
Allowance doesn’t need to go on a P11D
If given a RSA exclusively for entertaining, the allowance will not be allowed in computing the employer’s taxable profits and therefore not subject to tax and NIC

Question 8

Mileage

Answer 8

Any profit is not taxed under PAYE but needs to go on a P11D. Will also be subject to Class 1 NIC. Amount paid is compared to the business miles travelled reimbursed at 45p

Question 9

Incidental Expenses

Answer 9

Payments not exceeding £5 per night in the UK and £10 per night abroad are not subject to tax or NIC. Exceeding amounts are subject to tax and NIC

Question 10

Relocation

Answer 10

Qualifying payments up to £8,000 limit are not subject to tax and NIC and don’t go on the P11D.
Qualifying payments exceeding £8,000, the excess goes on the P11D
Non-qualifying payments are treated as private expenses and apply the normal rules to determine whether tax and NIC apply.