Tax relief / tax refund on expenses if you are an employee

Employment

You may be eligible for tax relief if you are an employee who incurs certain business expenses that your employer does not reimburse. This only applies to business expenses incurred in the course of your employment. We’ll talk about the relief in this section.

The tax relief works by taking off the amount of the expense from your employment income. This reduces your taxable income and the tax you have to pay. This is why they are sometimes called ‘tax deductible’ or ‘allowable’ expenses. You may have to make a claim in order to obtain this tax relief.

We’ll go over the various types of tax-deductible employment expenses and how to claim tax relief on them in the sections below. If you are not a taxpayer, you will not receive any relief for these expenses because the relief works by lowering your taxable income.

If your employer pays for or reimburses your employment expenses, you cannot get tax relief in the same manner, because you have not personally incurred any expense.

What types of expenses can I get tax relief for?

The rules for deducting expenses from your earnings are very strict. They must be incurred ‘wholly, exclusively, and necessarily’ in the performance of your duties, according to the general rule. This means that whoever fills your role will be responsible for the costs, and that the costs will be incurred while performing your duties rather than putting you in a position to perform those duties.

As a result, even if you have to wear clothes to work that are different from what you normally wear, the cost of clothing would not normally qualify for tax relief. However, if you require special clothing that is not provided by your employer, such as specialist footwear in the construction industry, you may be eligible for tax relief.

On the same basis, travel costs from home to work would not normally count as expenses you can get tax relief on, although there are exceptions to this.

What tax relief is there for special tools and clothing?

Even if you wear it to work, the cost of normal, everyday clothing is not a tax deductible expense. Employees in a variety of industries, on the other hand, can claim tax relief on fixed amounts for the upkeep of tools or any ‘specialist’ or protective work clothing that is not paid for by the employer – these are known as flat rate expenses.

You cannot usually claim for the initial cost of buying tools and specialist or protective clothing. Instead, you can claim for their upkeep, for example, repairing, cleaning or replacing them. You should remember that even if you only use your own washing machine at home to clean your specialist or protective clothing, there is a small cost to you associated with this in terms of electricity, detergent, etc. The flat rate system is therefore useful, as you do not have to keep a record of the individual amounts you spend.

This is a benefit that is frequently overlooked because it is not widely publicised, but it can be extremely beneficial to certain individuals, such as agricultural workers, public transportation employees, labourers, and healthcare workers.

You simply claim the amount shown on the list for your type of industry or occupation (the amounts have been calculated according to the annual cost of repairs, cleaning, etc. for each occupation type and have been agreed with trade unions and representative bodies). Alternatively, you can claim tax relief for the actual amounts you spend, but you need evidence of your expenses (receipts for repairs, etc.) to do this.

What are other tax deductible employment expenses?

There are a few other types of tax-deductible employment expenses that the law specifically allows.

Professional fees and subscriptions are allowable deductions if you need to pay them in order to practise your profession. Annual subscriptions to certain professional organisations approved by HMRC are also permitted.

What tax relief is there for employees who work from home?

Employers can make tax and NIC free payments to an employee in respect of reasonable additional costs incurred for working at home, for example, gas, electricity, telephone, internet. HMRC allow a tax- and NIC-free flat rate reimbursement of up to £6 a week (from 6 April 2020 and £4 per week from 6 April 2012 to 5 April 2020) if this is easier than having to work out actual amounts.

However, if you are employed on the basis that you work from home or have no choice but to work from home, and your employer does not reimburse you for any household expenses, you may be eligible for tax relief for a portion of your household operating costs. This could apply to you if it is written into your contract that your place of work is your home, or if you have to work from home because your employer does not have available office space.

A home working arrangement is when you are not required to work from home but do so on a regular basis by agreement with your employer. These arrangements don’t have to be in writing, and they don’t have to involve all employees, but the tax rules apply differently here than when an employee is hired specifically for the purpose of working from home. If an employee only works at home informally/occasionally, no relief is available for expenses, whether reimbursed or not.

During the coronavirus pandemic HMRC have agreed that your employer may reimburse to you the costs of home office equipment that you have had to buy in order to work from home. But note that if your employer does not reimburse these costs to you (for example, the purchase cost of a desk), you cannot claim this as a business expense and obtain tax relief.

Unreimbursed expenses and the minimum wage and benefits.

If your employer does not reimburse your expenses, it is worth noting that if your hourly wage is at or near the national minimum wage, the national minimum wage rules provide some protection. This is true when an employee incurs expenses related to their job that are not reimbursed by their employer.

Essentially the rules say that where an employee incurs expenses in connection with employment that are not reimbursed by an employer the cost is not allowed to reduce their wages below the minimum wage.

If you are on universal credit (UC) or tax credits and incur unreimbursed expenses as part of your job, then make sure you tell DWP or HMRC about them, as they could reduce your earned income for UC or tax credits purposes, meaning a higher award.