Due to changes in the rules which took effect in April 2016, qualifying business expenses you reimburse your employees do not count as their taxable income and are not needed to be reported to HMRC on form P11D. Expenses qualify for this if the employee would be able to claim a tax deduction for the cost, had they incurred it personally. In the past, all you had to do was report the expense to HMRC and they would consider whether the expense qualified for a tax deduction. However, since April 2016, it is now up to employers to decide. If you believe the expense would be tax deductible you can reimburse the employee and record it in your business record – and that’s it. If it is not a qualifying expense then you must treat is as earnings and deduct PAYE and NI. Expenses that are incurred “wholly, exclusively and necessarily in the performance of the duties” of the employee’s job, are generally tax deductible. However, business travel and such expenses (accommodation and subsistence) are more difficult, and getting this wrong can lead to you bearing the cost of PAYE and NI.
Should you need any advice on paying expenses, then please do not hesitate to contact us with any queries.