What are tax allowable expenses?
Depending upon your working status, certain expenses of employment can be claimed, thus serving to reduce your income tax and National Insurance liabilities and increase your take-home pay.
To claim expenses they must qualify under the following criteria. They must be “incurred wholly, exclusively and necessarily in the performance of one's duties”. This phrase can be broken down into five elements:
- Incurred: the expense must be actually incurred, money must have been spent
- Wholly: the whole of the expense was incurred for business purposes
- Exclusively: the expense was only incurred because of the duties of employment
- Necessarily: the expense had to be incurred because of the job
- One’s duties: the expense was incurred in carrying out the duties of the job
Expenses fall into certain categories and for many of these there is a further test to be applied. To treat your daily travel and subsistence costs as allowable, your employment status must be “site-based”. The tests that are applied to determine whether you are site-based are, as follows:
- You have not been nor do you expect to be at the same Client site for more than 24 months (your previous permanent employment site must be included in the consideration of this criterion) AND
- You must work at more than one site during your contracting career.
There are other expenses that satisfy the tax allowable criteria but do not rely on your being site-based. These would include expenses incurred whilst staying away from home on business (hotel, meals, etc) and additional expenses allowed to non-UK nationals who satisfy certain additional criteria.
All expenses require to be supported by receipts unless they are “scale rate payments” subject to an HMRC dispensation, which is often the case with Umbrella companies.
