What’s claimable (or not) on expenses in the UK?
Want to know about common mileage myths? Not sure whether the government will accept digital copies of receipts or not? Or are you simply confused about VAT? In this three part blog series, we talk about 15 common expenses myths, inluding VAT reclaim and mileage.
Myth 1 – Can paying expenses supplement employees’ salaries, tax-free?
No! Expense payment can be made tax-free, but only if they meet certain criteria.
The Golden Rule for allowances and expenses, according to HMRC, is as follows: “an employee may deduct expenses incurred wholly, exclusively and necessarily in performing their duties.”
Here’s a list of examples of expenses that typically qualify to be paid tax-free.
- Travel (including business mileage)
- Protective clothing
- Eye tests
- Professional subscriptions
- Charitable donations.
Myth 2 – Staff parties and events are totally tax deductible
When it comes to staff parties and special events, there is some leeway to claim tax back, but the rules are very strict.
Your annual employee event will be exempt from tax, National Insurance contributions and reporting only if it meets the following three conditions:
- It’s an annual event, such as a summer BBQ or an end-of-year party
- The event is open to all of your employees
- The cost per head of the event isn’t more than £150.
So, you can have an office party as long as it doesn’t exceed £150 per person. You can also spread it over two or more events, but: the cost of the event that takes you over the threshold will have to be taxed in its entirety.
Myth 3 – Employees don’t fiddle their expenses
Yes and no……..Your employees, like most, are keen to do a good job, but with the best will in the world, manual paper-based expense processes are always open to abuse, errors, lost receipts and miscalculations.
So yes some employees do make fraudulent claims, but on the whole it is the actual system that is broken. What we mean by this is that using an Excel Spread sheet for expenses is the weakest link. Not many of us are experts in using excel and automatic errors can be generated without anyone realising.
First Myths Busted!
Watch out for our next blog on VAT and UK travel expenses in the UK, but if you can’t wait until next week, you can download all 15 myths here.
Regarding all the myths discussed above and in the coming blog posts always check with HMRC in the first instance regarding all TAX and VAT issues as each companies circumstances are different.