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Employee expenses – a word of caution!!

During the Christmas season the prospect of a nice tax refund from HMRC can appear a very attractive prospect.  There are plenty of companies out there who will tell you that they can get you a refund and all you have to do is pay them a percentage of that refund for doing so.

If you are an employee and taxed under PAYE, the bar to claiming a tax deduction expenses is quite a high one.  Expenses have to be incurred “wholly, exclusively and necessarily” for the purposes of your employment – in practice you have to be obliged by the nature of your work to incur these expenses.  Even then, if your employer reimburses you for some or all of the expenses than you can only claim for any part that was not reimbursed.

In some cases, HMRC has agreed a “flat rate” expense amount for workers in certain industries to cover costs such as replacing and maintaining tools and cleaning uniforms etc.  This does not mean every worker in that industry is entitled to that tax deduction – if your employer provides you with everything required to undertake your role or reimburses any expenses you incur then HMRC will not allow a deduction.

Where there is no flat rate allowance due, if you claim a tax deduction HMRC will expect you to have the paperwork to prove that you actually incurred the expense you are claiming for.  This might include receipts, details of any business travel you are claiming for etc. 

One common area where people get confused is around travel expenses.  The law says that travelling from home to your normal place of work is not a deductible expense for tax purposes.  If you have to travel to a client site or work away from your usual workplace the cost of travel will generally be deductible but you still need to be able to provide the evidence to show the travel was work related.

The majority of firms who help people claim back tax on expenses are perfectly legitimate and only help you claim what you are actually entitled to.  However, there are some unscrupulous operators out there who will try to get you to claim for more so they can increase their cut.  If you are approached you should ask yourself “if HMRC asked me to back up my claim would I be able to?”

If the tax office receives a lot of claims from the employees of one business it might cause them to look more closely.  Although the claims company might submit the claim on your behalf, if HMRC come asking questions you will still need to answer them.  Above all make sure the claim company explains to you exactly why they consider you are entitled to claim tax back because if HMRC think you have deliberately claimed too much then as well as paying the tax back they may also impose financial penalties on you.

You should not be discouraged from making legitimate claims and often these businesses can provide you with an easy way of doing so (at a cost of course).  Just don’t forget the ultimate responsibility for what HMRC is told stays with you – so if something sounds too good to be true, just take a minute to make sure that it isn’t!

Contact us if you need any advice.

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