New rules are being introduced for claiming employment expenses. To help reduce ineligible claims and tax abuse employees now need to use a P87 form and provide supporting evidence. The new rules took effect on 14th October 2024.
The new process to “check first, pay layer” follows feedback that more ineligible claims were being made. Now tax relief will only be agreed once the taxpayer or their agent has sent evidence to HMRC.
The new rules
Any employees who incur job-related expenses of up to £2,500 per tax year, and who aren’t fully reimbursed by their employer will need to provide the information with a printed P87 form. As an employer you can reimburse expenses incurred by an employee. Alternatively your employee can claim income tax relief for allowable expenses direct from HMRC.
Can claims be made online?
At present there is only a postal process in place although HMRC is working to re-establish a digital route. Digital options should be available by April 2025. Anyone claiming for uniform, work clothing and tool expenses can do so online already.
What evidence is needed?
Any claims must confirm details of which employment incurred the expense and whether the employer reimbursed any of the cost, along with evidence. Examples of the evidence might include:
- Copy of a mileage log for mileage allowance
- Copies of receipts for subscriptions to professional bodies
- Evidence that working from home is part of their role e.g. an employment contract
- Receipts for hotel and meal expenses
Flat rate expenses still require the taxpayer to make sure they are eligible to claim these. Flat rate expenses allow tax relief to be claimed for a fixed amount each tax year to cover what spend on the clothing and tools needed to perform any duties.
Why have the rules changed?
The need for evidence is part of changes HMRC has made to tighten the rules around P87 to reduce tax abuse and mistakes.
For help and advice with any aspect of your business accounts please get in touch.