How expenses work for the employed and self-employed

There’s a good rule of thumb that applies both to Employees and the Self Employed: You are expected to pay for a meal out of your own pocket if you are working from home, or if you are at a standard place of work that you are engaged to work at.

If your employer or engager asks you to work away from your normal place of work, you can treat a meal that you take during that time (subject to time and price limitations) as an expense that you shouldn’t be taxed on. Your employer can pay for that meal, or if you are self-employed, you pay for it, and…

  • the employee’s income covering expenses is not taxable – it’s not a Benefit in Kind
  • the self-employed worker can treat the cost of the meal as a business expense that can be deducted from income when calculating the profits that you are taxed on.

If you are self-employed and an employer gives you £10 to pay for subsistence when you are away from a normal workplace that is just £10 additional income to you, but you can keep the receipt and treat it as an expense when you are doing your tax returns, which means that (if you spend £10 on a meal) your meal is paid for from untaxed bit of income.

Self-employed expenses are covered in detail on p21 of Tax for Freelancers April 2021 edition.

When you are paid something on top of your salary to cover an expense that you have personally taken on in the process of doing the work your employer/engager has asked you to do, then you will want that money to be treated as a tax-free expense payment and not a benefit in kind (which is taxable).

A ‘benefit in kind’ is a ‘perk’ – something the employer gives you on top of your salary. A car that you get private use out of is, at least in part, a perk and is taxed as such (here’s how).

HMRC have guidance on how this works for Employees (i.e. PAYE people, for the most part). Many companies will agree a Scale Rate with HMRC that covers costs of travel and/or subsistence for when you are working away from your normal place of work (you can’t claim expenses for travel to your normal place of work, or meals taken there). Alternatively, HMRC have a standard one called “Benchmark Scale Rates.”

According to Ross Martin….

“The Finance Act 2019 enables employers to pay certain subsistence expenses without needing to check or retain employee’s receipts. From 6 April 2019 employers can reimburse employees using UK Subsistence benchmark Scale Rates or HMRC’s Worldwide Subsistance rates without any need to check or retain receipts.”

However, if you have a Scale Rate Agreement, employers should ask their employees to supply receipts though they don’t need to check each on – employers are told to only take samples to check for fraud.

It is sometimes possible for the self-employed to count business expenses without having receipts but advisable to have them wherever possible. There’s a good briefing on the Contractor Calculator site here.

Members may also want to look at how some other expenses (work, clothing, tools etc) can be written off against tax.

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One Response to How expenses work for the employed and self-employed

  1. Pingback: Expenses and tax relating to travelling to work | Bectu Freelance Research

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