CIOT: Don’t abolish tax relief for unreimbursed employee expenses

The government published a call for evidence in March, seeking to understand why claims for tax relief on expenses which employers do not reimburse to their employees increased 25% to £800m per annum between 2009-10 and 2014-15.

The CIOT believes that a key reason for the increase in unreimbursed claims by employees is that employers have tightened their belts in recent years in response to a more difficult economic environment. This does not, however, mean that those non-reimbursed expenses should not receive tax relief, says the tax body.

For example, for cost control reasons employers may pay a limited cash allowance to employees to cover their travel and subsistence away from their normal workplace. This will be taxable on the employee who will need to make their own claim for tax relief. HMRC will record this as an unreimbursed business expense albeit in fact it simply reflects the employee’s legitimate claim for tax relief on the expense he or she has incurred.

Colin Ben-Nathan, chair of CIOT’s employment taxes sub-committee, said: “While it may be tempting for a government to look at the cost to the Exchequer of tax relief on employment expenses and limit relief where the employer has not directly reimbursed the expense, we think that this would be the wrong response and that tax relief on non-reimbursed expenses should be retained.

“There may be many reasons why an employer does not reimburse, or only partly reimburses, the out-of-pocket expenses an employee incurs. This does not mean that the expense was not genuinely incurred by the employee in performing the duties of their employment. All workers should have the right to claim a deduction for the expenses incurred while fulfilling their work obligations, particularly where the employer chooses to pay a taxable cash allowance to cover employee expenses or where reimbursement is otherwise limited for cost control reasons.”

CIOT points out that while full reimbursement is clearly preferable, tax relief on employment expenses at least returns a fraction (20%, 40% or 45%, depending on whether the employee is a basic, higher or additional rate taxpayer) of the cost of the expense to the employee.

Colin Ben-Nathan added: “The CIOT’s survey of members indicates that many employees do not know that they are entitled to claim tax relief on non-reimbursed employment expenses, nor do many employees know where to find information on how to make a claim for tax relief.

“We are therefore calling on HMRC for better and easier access to appropriate information on which employment expenses are, or are not, eligible for tax relief, a simpler process for claiming tax relief and a better process for claiming flat-rate expenses (such as uniform cleaning allowances).

“The CIOT is also recommending that the government consider permitting willing employers to be able to give tax relief at source on non-reimbursed employment expenses by allowing them to assess expense information provided by the employee and, where they are satisfied that a tax deduction is due, reducing the employee’s taxable pay accordingly.”