General Rule for Employee Expenses

Understanding the general rule for employee expenses is crucial for employees and employers as it concerns the tax treatment of expenses incurred during their employment. This comprehensive analysis delves into the keywords and phrases, detailed examples, rules for travelling expenses, and the tests outlined by Lightman J. in Ansell v Brown (73TC338).

Key Words and Phrases

1. Wholly, Exclusively, and Necessarily: To be considered allowable for tax relief, an expense must be incurred wholly, exclusively, and necessarily. These terms denote that the expense must be entirely attributed to the performance of the employment duties without any personal component or element of choice involved. This strict criterion ensures that only expenses that are strictly necessary and directly related to employment duties are eligible for tax relief.
2. Employment Duties: Employment duties refer to the tasks, responsibilities, and functions an employee must perform as part of their job. Expenses incurred while carrying out these duties may be allowable for tax relief, provided they meet the “wholly, exclusively, and necessarily” criteria. Employment duties can encompass various activities, including attending meetings, providing services, and participating in training or development programs.
3. Ordinary Commuting: Ordinary commuting is travel between an employee’s home and permanent workplace. The cost of ordinary commuting is not allowable for tax relief, as it is considered a personal expense incurred by the employee to be in a position to perform their employment duties rather than a necessary cost directly related to the duties themselves.

Example: Equipment Expenses

An employee may need to purchase equipment necessary for their job performance, such as a laptop, protective clothing, or specialized tools. However, if the equipment is wholly, exclusively, and necessarily used for the performance of their employment duties, the cost may be allowable for tax relief.

For instance, graphic designer may require a high-performance laptop with advanced software to execute their work. If the laptop is used exclusively for work purposes and is essential for the graphic designer to perform their duties, the cost of the laptop may be eligible for tax relief. However, if the employee uses the equipment for both work and personal purposes or if the equipment is not strictly necessary for the performance of their duties, the expense may not be allowable for tax relief. To claim tax relief on equipment expenses, the employee must maintain records and evidence demonstrating that the equipment was wholly, exclusively, and necessarily used for their employment duties.

Example: Training Expenses

Employees may attend training courses to acquire or improve the skills required. If the training is necessary for the employee to perform their duties, and the cost is incurred wholly, exclusively, and necessarily, it may be allowable for tax relief.

For example, an accountant may need to attend a training course to stay up-to-date with new tax regulations and accounting standards. If the course is directly related to the accountant’s employment duties and is necessary for them to perform their job effectively, the cost of the course may be eligible for tax relief. If the training course is not directly related to the employee’s current job or is intended to help the employee qualify for a new job or promotion, the expense may not be allowable for tax relief. Furthermore, if the course includes elements of personal development or leisure activities, the cost may not be wholly, exclusively, and necessarily incurred for performing the employee’s duties and may not be eligible for tax relief. To claim tax relief on training expenses, the employee must provide documentation and evidence supporting the necessity of the training for their employment duties and the exclusivity of its purpose.

Example: Professional Fees and Membership Expenses

Expenses related to professional fees, such as membership fees for professional bodies, may be allowable for tax relief if they are incurred wholly, exclusively, and necessarily in performing the employee’s duties. Professional fees and memberships often provide employees with access to resources, networking opportunities, and professional development that can be essential for their job performance.

For example, a lawyer may be required to maintain membership in a professional legal association to stay informed about changes in laws and regulations, access essential resources, and network with other professionals in their field. If the membership is necessary for the lawyer to perform their employment duties effectively and the cost is incurred exclusively for this purpose, it may be eligible for tax relief. On the other hand, if the professional membership is optional for the employee to perform their job, or if the membership provides additional benefits unrelated to the employee’s duties (e.g., access to leisure facilities), the expense may not be allowable for tax relief. Therefore, employees claiming tax relief for professional fees and membership expenses should retain documentation and evidence demonstrating the necessity and exclusivity of the expense concerning their employment duties.

Rules for Travelling Expenses

1. Allowable Travelling Expenses: Employees may claim tax relief for travel expenses incurred wholly, exclusively, and necessarily in performing their employment duties. Eligible travel expenses can include public transport fares, mileage allowances, parking fees, tolls, and accommodation costs directly related to the employee’s duties. Examples of allowable travelling expenses include travel to temporary workplaces, travel between different workplaces and travel to attend business meetings, conferences, or training courses.

1. Non-allowable Travelling Expenses: Travel expenses incurred for ordinary commuting or private travel are not allowable for tax relief. Ordinary commuting expenses are considered personal costs incurred by the employee to put themselves in a position to perform their duties rather than expenses directly related to the performance of the duties themselves. Private travel expenses, such as vacations or personal trips, are similarly not eligible for tax relief.

Tests in Ansell v Brown (Case Law 73TC338)

In Ansell v Brown, Lightman J. outlined several tests to determine whether an expense is allowable for tax relief. These tests serve as a framework for evaluating the eligibility of an expense in the context of the “wholly, exclusively, and necessarily” criteria:

• The expense must be incurred in performing the duties of the employment: This test emphasizes the direct relationship between the expense and the employee’s duties. An expense not directly connected to the performance of the employee’s job will not be eligible for tax relief.
• The expense must not be incurred in putting the employee in a position to perform their duties: This test distinguishes between expenses directly related to the performance of employment duties and those related to the employee’s personal circumstances. For example, costs such as ordinary commuting, which is incurred to enable the employee to be in a position to perform their duties, are not eligible for tax relief.
• The expense must be necessary, not just desirable or convenient: This test focuses on the necessity of the expense in the context of the employee’s job. Expenses that are merely convenient or desirable but not strictly necessary for performing the employee’s duties are not eligible for tax relief.
• The expense must not be incurred for any other purpose, even incidentally: This test highlights the exclusivity requirement of the “wholly, exclusively, and necessarily” criteria. If an expense is incurred for any other purpose, even if that purpose is incidental or secondary to the performance of the employee’s duties, the expense will not be eligible for tax relief. The employee must demonstrate that the expense was incurred solely to perform their employment duties, without any additional personal or non-work-related component.

The general rule for employee expenses is critical for understanding the tax treatment of employment-related expenses. By familiarizing themselves with the keywords and phrases, detailed examples, rules for travelling expenses, and the tests established by Lightman J. in Ansell v Brown (73TC338), employees and employers can ensure compliance with the relevant tax regulations and make informed decisions regarding allowable expenses. Employees must maintain accurate records and documentation to support their claims for tax relief on employment-related expenses. Employers should also develop and implement clear policies and guidelines for employee expenses to minimize the risk of non-compliance with tax regulations. Understanding the general rule for employee expenses and its application to various expense categories can help employees and employers navigate the complex landscape of tax regulations and ensure they are fully informed of their rights and obligations concerning tax relief on employment-related expenses. If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.