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HMRC’s new guidance on business travel
Following changes in the rules on 6 April 2016, qualifying business expenses that you reimburse to your employees, or meet on their behalf, don’t count as their taxable income and don’t need to be reported to HMRC on Form P11D. Expenses qualify for this treatment if, had the employee borne the cost personally, they would be entitled to claim a tax deduction for it.
Under the old rules once you reported the expense to HMRC, your job was done. It would consider whether the expense qualified for a tax deduction. However, since 6 April it’s employers who must decide. If you believe an expense would be tax deductible you can reimburse the employee, record the transaction in your business records and that’s the end of the matter. But if it’s not a qualifying expense you must treat it as earnings and deduct PAYE tax and NI.
Some types of expense aren’t a problem - it’s easy to decide if they are tax deductible. For example, where an employee works from home and buys the stationery they need to do their job, you can reimburse them tax and NI without a worry. However, other expenses are less clear cut.
The general rule is that an expense is tax deductible, and therefore can be reimbursed or paid for without applying PAYE tax or NI, if it’s incurred “wholly, exclusively and necessarily in the performance of the duties” of the employee’s job.
HMRC has revamped its guide to employee travel expenses (Booklet 490) to cover the new rules.
If you are in any doubt about your position in relation to this issue, please talk to your usual Thomas Croft contact as soon as possible.