Can you claim that? What you need to be considering with employment expense deductions

Understanding the rules around employment expenses is essential for both employers and employees. Whether an expense qualifies as a business cost can determine if it can be reimbursed tax-free, or if an employee can claim a tax deduction directly from HMRC. This article clarifies the latest HMRC guidance and practical steps for compliance.

Employer reimbursements: What’s allowed?

HMRC has simplified the rules for tax-free expense reimbursements in recent years, including updates in the latest Budget. Most routine business expenses can now be reimbursed without creating a taxable benefit or requiring P11D reporting, provided they meet HMRC’s exemption criteria:

Actual business expenses: The reimbursement must cover genuine business costs incurred by the employee, supported by receipts.

HMRC-approved flat rates: Employers can use benchmark rates, such as mileage or subsistence allowances. For example:

• Mileage: 45p per mile for the first 10,000 business miles in an employee’s own car, then 25p per mile thereafter.
• Subsistence: £5 for a meal when an employee is away from their normal workplace for at least five hours.

Employers may also agree bespoke flat rates with HMRC if typical expenses exceed standard rates. However, even when using flat rates, employers must check that employees are actually incurring the costs.

Compliance is key: Employers should maintain accurate records and evidence for all reimbursements. Payments must reflect genuine business expenses. Failure to comply could result in the reimbursement being treated as a taxable benefit, subject to PAYE and National Insurance, and potentially requiring P11D reporting.

Employee deductions for non-reimbursed expenses

Employees can claim tax relief on expenses they pay “wholly, exclusively, and necessarily” for their job, provided these are not reimbursed by the employer. Common examples include:

• Specialist tools or protective clothing
• Business travel costs (excluding commuting)
• Professional subscriptions required for the role

Not allowed: Expenses with a dual purpose, such as general clothing or costs for personal development (e.g. learning a new skill), are not eligible for tax relief.

A notable change from the recent Budget is that, starting 6 April 2026, employees will no longer be able to claim tax relief on the £6 flat rate allowance for homeworking costs.

However, where an employer pays this allowance directly to the employee, it remains tax-free. This, along with other Budget changes, is described in the following brochure: Autumn Budget Summary 2025 | Brochures | Larking Gowen. But if you would like more details, please get in touch with your normal contact.

HMRC’s focus on employment expenses

HMRC is actively reviewing claims for excessive or unusual employment expenses. Both employers and employees should ensure claims are substantiated and well-documented.

Need help?

Understanding which expenses qualify and how to claim them can be complex, especially with ongoing changes to the rules. Get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk.

Liam Kedge