Chapter 21 Expenses of Employment Flashcards
expenses, deduction expenses, travel expenses and professional fees and subscriptions
Expenses that are allowed as a deduction in arriving at net taxable earnings fall into five main categories: expenses deductible under s.336, travel expenses, payments made to an occupational pension scheme, professional fees or subscriptions and donations made by an employee to charity under the payroll deduction scheme.
Section 336 deduction expenses – a deduction is allowed if the employee is obliged to incur and pay the expense as holder of the employment and the amount is incurred wholly, exclusively and necessarily in the performance of duties.
Travel expenses – a deduction is allowed if the expenses are necessarily incurred on travelling in the performance of the duties of employment or attributable to the employee’s necessary attendance at any place in the performance of the duties of employment. Section 338 denies a deduction for expenses of ordinary commuting which is the employee’s home and a permanent workplace or a place that is not a workplace and a permanent workplace.
Professional fees and subscriptions – a deduction from taxable earnings are allowed for an amount paid by an employee in respect of a professional fee. This is allowed provided the employment involves the practice of the profession to which the fee relates to. A deduction is also allowed for annual subscriptions paid to an approved body and as long as the body are directly related to the individuals profession.
charitable donations, reimbursed business expenses and round sum allowances
Charitable donations – the are two methods of tax relief on these. The gift aid scheme, payments made net of basic rate tax and this extends the basic and higher rate limits by the gross donation. The second is the payroll deduction scheme (GAYE). Donations are made gross and this gross donation is deducted from taxable earnings for the year.
Reimbursed Business Expenses – where an employee incurs an allowable business expense this amount can be deducted by the employee in arriving at net taxable earnings. A business expense is only allowable if it is wholly, exclusively and necessarily incurred in the performance of duties, or if it is qualifying travelling expenditure. However often allowable expenses are paid after an employee submits an expense claim, this income is exempt from tax.
Round Sum allowances – this is a general allowance usually a fixed amount of cash paid to the employee in advance to cover his or her expenses for a particular period, this is exempt from tax. When this contains a profit element or reimburses non-qualifying expenditure this is subject to tax.
