Business & Personal Tax Made Simple Omega2 Accounting
The Claiming of Expenses
The claiming of work expenses is a legitimate way to reduce your tax bill. However, few workers take advantage of the regulations either because they are unaware that they apply, are unsure as to what is allowable or unclear as to how long an expense may be claimed.
HM Revenue & Customs (HMRC) have several rules relating to the claiming of expenses and these are applicable to all workers, not just the self-employed or those contracting. In order for an expense to be eligible for tax purposes it must satisfy the following criteria:
It must be wholly and exclusively for the purpose of the work
It must be incurred specifically in the performance of the work’s duties
The regulations attempt to differentiate between an expense that might be used for both work and personal purposes and those which are necessary for work. For example, the purchase of a suit would not be allowable as this might be used outside of the workplace and so have a dual purpose. However, the costs of safety clothing or items that were part of a recognised uniform would be acceptable as tax deductible expenses.
There are also some expenses that may be partially claimed, such as the use of a home telephone for business purposes. In such cases the costs of the business element would be allowable, such as the cost of the business calls themselves, while the non-business element, such as the line rental, would not be.
It should be noted that where an employer reimburses an employee for an expense that they have incurred the cost is no longer deductible for tax purposes as the overall cost to the employee is zero.
A common expense is the cost incurred in travelling to and from a workplace. While an employee may not claim the cost of travel to their permanent place of work, or between two permanent workplaces, they are entitled to claim the cost of any travel to a temporary workplace, such as other sites or a client's premises. The regulations governing expenses at a temporary workplace are referred to as the two year or 24 month rule.
The following table is intended
as a guide for allowable expenses
Journey From Journey To Description Tax Deductible
What is a Temporary Workplace
A temporary workplace is one where a worker attends there only to perform a task of limited duration or for a temporary purpose. In this instance a limited period is deemed to be 24 months or fewer. Where a worker attends, or expects to attend, a location for a period of less than 24 months the workplace is a temporary one and the claiming of travel expenses to that location becomes allowable.
Where a worker can reasonably expect to be at the same workplace for 24 months, or become aware that they might be, it would be deemed a permanent workplace and the claiming of any travel costs would not be allowed. This would be applicable where a worker is employed on a permanent basis or as a temporary worker on a project which has duration of more than two years. As such, a workers intention and expectation can be viewed as being as important as the actual time involved.
An extension to the regulations relates to the movement of workers within a 24 month period. Where a worker changes sites on a regular basis but still has a consistent journey in terms of time, cost and destination, for example sites within The City’s square mile, the workplaces would all be deemed permanent.
It is not uncommon for a worker to return to the same place of work after a period of absence. Where the worker has spent more than 40% of their working time at that workplace in a 24 month period, even with a break in engagements, the workplace is considered permanent.
Summary
The rules relating to the claiming of expenses apply to all employees
An expense that is wholly and exclusively for the purpose of work is allowable
To be allowable an expense must not have a dual purpose or provide any form of personal gain or benefit
Whether a workplace is permanent or temporary is essential in determining whether expenses can be claimed