HMRC have changed the rules on the re-imbursement of expenses to employees. Expenses are no longer treated as taxable income and do not need to be reported on a P11D annually as before. Expenses qualify for this treatment if, had the employee borne the cost personally, they would be entitled to claim a tax deduction for it.

From an employer’s point of view their job was done when the P11D was completed, leaving HMRC to decide if it was allowable.  Now the employer must make that decision and be potentially penalised if they get it wrong.

Some expenses are easy. If an employee works from home and buys some stationery, that can be refunded free of tax and NI. Travel costs are more problematic. The overriding rule is the same as always, the inelegant “wholly, exclusively and necessarily in the performance of the duties.”

Don’t forget that for the 2015/16 tax year a P11D is still required and must be filed before 6 July 2016.

For more information on the new system see the HMRC guide: Booklet 490