HMRC has an exemption from paying tax and National Insurance on certain qualifying expenses that are paid, reimbursed or provided to employees.
What are qualifying expenses?
Qualifying expenses are costs incurred by employees or directors in the performance of their duties that can be reimbursed without triggering a tax liability, provided they meet HMRC’s criteria and are properly documented.
The most common qualifying expenses include:
Travel and subsistence
- Includes: Costs for business travel such as mileage, public transport, accommodation, and meals
- Important: These must relate to genuine business journeys and not commuting to a regular workplace
- Action: Retain all receipts and records to support the claim
Hire car costs
- Reimbursement is allowed for hire car charges and associated fuel costs
- Condition: Claims must be supported by valid receipt.
Telephone expenses
- Reimbursement is permitted for business calls made on personal phones
- Exclusions: Line rental, mobile contracts, and equipment costs are not reimbursable unless the contract is in the company’s name
- Tip: Use itemised bills to identify and support business call claims on personal phones
Business entertainment
- Includes: Costs for entertaining clients or third parties in a business context can be reimbursed
- Exclusions: Entertainment of relatives, partners, or colleagues from the same organisation is not allowable
Professional fees and subscriptions
- Includes: Fees paid to HMRC-approved professional bodies can be reimbursed tax-free.
- Note: The full list of approved organisations is available on HMRC’s website (List 3).
Checking systems
It is a statutory requirement for employers to operate a system for checking employees’ expenses claims. The system must check:
- The employees are actually incurring expenses
- The amount claimed is not excessive
- A deduction would be allowable for those expenses
The extent and regularity of the checking process will depend on the size of the workforce and the nature of the expenses being reimbursed. As well as reviewing claim forms and receipts, items such as diaries, attendance records and work schedules should also be checked.
HMRC expect employers to have the appropriate systems in place and will want to ensure that employers are complying with their duties and responsibilities. If employers are found not to have the necessary checking systems in place, then tax, NIC and penalties could be charged.
If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.
