Reminder: Flat-rate expense agreements

Workers in a number of different sectors are often obliged to spend small amounts each year maintaining or replacing tools and special clothing, which are deemed necessary for them to carry out their employment duties.

In order to provide support to these workers, HM Revenue & Customs (HMRC) allows a flat-rate expense to cover these costs. While this has been the case for a long time, many people and businesses still remain unaware of this opportunity.

It would be cumbersome to deal with individual deduction computations for each employee and time consuming for taxpayers and for HMRC, so flat-rate deductions have been negotiated on a national basis with trade unions.

These flat-rate deductions apply to the employees in specified occupations which can be found here.

However, flat-rate deductions are only permitted where an expense is necessarily incurred by the employee and this must be demonstrable to HMRC if requested.

Flat-rate expense deductions are provided for under Section 367 ITEPA 2003, the terms of which are that:

  • the flat-rate amount is only deductible where the expense falls on the employee
  • the employer reimburses the expense, or would do so on request, no deduction is permitted
  • the employer reimburses, or would reimburse, part of the expense, the deduction is reduced accordingly.

No employee can be disadvantaged by setting a flat-rate amount because Section 330(2) ITEPA 2003 allows the actual expense incurred to be deducted for any year instead of the fixed rate amount and an employee does not have to be a member of the relevant trade union for the deduction to be given.

The deductions are intended to cover the average expenditure that would be deductible under Section 336 ITEPA 2003. But there is nothing to prevent an employee asking for a deduction in any year for the actual expense he or she has incurred.

LINK: Flat Rate Extensions