Employment Expenses Guide

When you are employed you can normally reclaim certain allowable expenses from your employer via their Expense Claim process.

An alternative is to claim tax relief from HMRC. But in order to do this your employer must not have reimbursed these expenses either financially or in kind, and you must have paid tax during the year, as tax relief is given at the rate you pay tax (basic, higher, additional). Note – HMRC provide this tax relief by adjusting your tax code for the tax year in question.

This guide helps to explain which expenses are “allowable” and is based on the guidance provided by HMRC.

The rule for claiming allowable expenses is that they must be “wholly, exclusively, and necessarily” incurred in the performance of your employment. The rule is therefore stricter than the “wholly and exclusively” test applied to those who are self-employed.

And if an expense has duality of purpose (i.e. it is used for both personal and business purposes) then these expenses are NOT allowable (e.g. everyday clothing worn at work). However, where the business and personal usage can be separately and reliably measured then you are able to claim for the business part of these expenses.

Retaining evidence in respect of expenses you have claimed is crucial. HMRC don’t ask you to provide proof of expenses when you submit your tax return each year, but they do occasionally perform spot checks. And they may therefore approach you in the future and ask you to provide evidence to verify the expenses you have claimed. So, it’s important you keep all original receipts for any expenses claimed for a period of at least 6 years.

ALLOWABLE EXPENSES

HMRC have classified the following categories of expenditure as “allowable expenses”:

WORKING FROM HOME EXPENSES

You can normally claim tax relief where your employment requires you to work from home, for instance due to the location of where you live, or because your employer does not have an office. Unfortunately, relief is not available if you work from home voluntarily, even if your contract allows this.

In earlier tax years, tax relief was available at £6 per week (i.e. the equivalent of £1.20 for a basic rate taxpayer). However, from 6th April 2026 employees can no longer directly claim tax relief from HMRC for working from home (WFH) costs.

Instead, tax-free reimbursement is only available if paid directly by the employer, requiring that there is no duality of purpose (private use), and the values can be evidenced.

CLOTHING AND TOOLS EXPENSES

In the majority of cases the cost of clothing is NOT allowable as there is duality of purpose and the business and personal usage cannot be separately measured. However, where clothes are purely business related such as the cost of uniforms, additional protective clothing, or costumers (e.g. for Actors) then this is allowable.

Likewise, costs incurred in cleaning, repairing, or replacing a uniform or tools required for performing your job is also allowable.

Normally it is the actual value evidenced by receipts which is allowable, but some employers also operate a flat rate scheme.

PRIVATELY OWNED VEHICLES

Tax relief is available for the business use of privately-owned cars, good vehicles (e.g. vans), motorcycles, or bicycles. To qualify you need to keep a record of all business-related mileage and then apply the following flat rates to determine the total allowable expenditure:

• Cars and goods vehicles up to 10,000 miles – Claim 45p per business mile
• Cars and goods vehicles over 10,000 miles – Claim 25p per business mile
• Motorcycles – Claim 24p per business mile
• Bicycles – Claim 20p per business mile.

COMPANY CARS

You can also claim tax relief on the money you’ve spent on fuel and electricity, for business trips in your company car. Alternatively, a flat rate scheme also applies based on the fuel type and engine size of the company owned vehicle. To qualify you need to keep a record of all business-related mileage and then apply the relevant flat rates to determine the total allowable expenditure.  Note these rates change on a quarterly basis, but the rates at the time of writing (Apr 26 to Jun 26) for guidance purposes were as follows:

• Company Car – Petrol (1400cc or less) – Claim 12p per business mile
• Company Car – Petrol (1401cc to 2000cc) – Claim 14p per business mile
• Company Car – Petrol (over 2000cc) – Claim 22p per business mile
• Company Car – Diesel (1600cc or less) – Claim 12p per business mile
• Company Car – Diesel (1601cc to 2000cc) – Claim 13p per business mile
• Company Car – Diesel (over 2000cc) – Claim 18p per business mile
• Company Car – LPG (1400cc or less) – Claim 10p per business mile
• Company Car – LPG (1401cc to 2000cc) – Claim 13p per business mile
• Company Car – LPG (over 2000cc) – Claim 18p per business mile
• Company Car – Fully Electric (Home Charger) – Claim 7p per business mile
• Company Car – Fully Electric (Public Charger) – Claim 15p per business mile

PROFESSIONAL FEES AND SUBSCRIPTIONS

Tax relief is available for annual professional fees and subscriptions where these are a requirement of performing your job and you have paid these fees yourself.

TRAVEL, ACCOMMODATION AND SUBSISTENCE

Travel expenses can be complex area of tax law. Generally speaking tax relief is available for journeys which:

• An employee has to make in the performance of the duties of the employment, or
• To a workplace an employee has to attend to carry out the duties of the employment, but not if the journey is ordinary commuting or private travel.

This effectively means that travel to or from your permanent place of work is not allowable, but most other business travel is.

In addition, any accommodation and subsistence expenses “necessary” for the performance of business are also allowable.

This includes for instance:

• Public transport costs
• Hotel accommodation if you have to stay overnight
• Food and drink
• Congestion charges and tolls
• Parking Fees
• Business phone calls and printing costs

Note – The cost of a reasonable level of refreshments with the meal is also allowable (both alcoholic and non-alcoholic), and refreshments such as tea, coffee or soft drinks taken between meals.

There is also a special exemption for incidental expenses incurred by employees staying away from home overnight, including for instance: newspapers, laundry and home phone calls.

In all cases receipts and evidence of expenditure must be retained.

To simplify the process HMRC does alternatively allow the use of “per diem” flat rates, and when these rates are applied it is not necessary to retain receipts.

Flat rates for Meals depend on the journey time as follows:

• 5 hours – £5
• 10 hours – £10
• 15 hours (and ongoing at 8pm) – £25

Additionally, where a rate of £5 or £10 is paid, and the qualifying journey lasts beyond 8pm an additional £10 can be paid to cover the additional expenses of working late.

Flat rates for incidental overnight expenses are as follows:

• £5 (including VAT) per night for overnight stays anywhere within the UK
• £10 (including VAT) per night for overnight stays outside the UK

Furthermore, where the employee is travelling overnight on an overseas basis, HMRC have also defined “per diem” rates for each type of expenditure based on the geographical location being visited. The scope of these is too detailed to be included within this guide, but they can be viewed here for reference purposes: https://www.gov.uk/guidance/expenses-rates-for-employees-travelling-outside-the-uk .

POINT TO NOTE: THE 24 MONTH RULE

Temporary workplaces are places that an employee attends for the purpose of performing duties of employment for a limited duration. There is a special rule that prevents a workplace being a temporary workplace where the employee attends it over a period that lasts more than 24 months, or is likely to last more than 24 months.

Expenses relating to travel, accommodation, meals and incidentals cannot be claimed if the employee knows or suspects their time at a certain workplace will extend beyond 24 months. This will include any time spent at that workplace in the preceding months before their current employment.

The test is whether the employee will spend 40% or more of their time at a particular workplace for more than 24 months. If he/she does then it will not be a temporary workplace and will as such, be regarded as a permanent place of work.

The 24-month rule is geographical and even if you have a change of contract, but stay in the same area to carry out your work, the expenses would not be allowable. There has to be a substantial change to your journey for you to re-claim these expenses again.

Additional, special rules exist for identifying whether a temporary workplace is created under short, fixed term contracts which extend beyond the “24 month” rule mentioned above. Specialist advice should be sought in these instances.

HOW TO SUBMIT MILEAGE / EXPENSE

Note – The methods which we support to process expenses depend on whether you are using Xero or FreeAgent.

XERO – HOW TO SUBMIT INVOICES AND EXPENSES

There are different applications which can be used to submit invoices and expenses which integrate directly with Xero.  We recommend the use of Hubdoc for all but our larger SME clients because the application is owned by Xero and unlike Xero’s own product offering (Xero Me) it is subscription free for many Xero subscriptions and can therefore be used by many of our clients at no additional cost.  Xero’s own subscription service is useful for larger SMEs who have multiple employees who require expenses to be managed separately and is charged at £2.50 per user per month plus VAT.

Clients who have Xero Ledger subscriptions (i.e. Dormant status clients and Ad-hoc status clients for which we provide a year-end accounts and tax return only service) will not have access to Hubdoc.  But all Xero Ignite, Grow, Comprehensive, and Ultimate subscriptions (i.e. Active / Inactive status clients) will have access to Hubdoc at no additional cost as part of their Xero subscription.

High level guidance about Hubdoc and links for downloading the associated App (optional) is published here: https://www.xero.com/uk/features-and-tools/accounting-software/hubdoc

Invoices and expenses can be submitted by clients to Hubdoc via a few different methods:

• Email – Each client receives a Hubdoc submission email address specific to their client company.  Please let your client manager know if you need another copy of this?
• Upload – Logging into Hubdoc directly (from the menu in Xero) for your client company will allow you to drag and drop files from your PC directly into Hubdoc.
• Hubdoc Mobile App – The app (available free via the App store for your phone) allows you to photograph and submit receipts using your smartphone.
• Auto-fetch – Where bills are routinely received from the same Plc supplier (i.e. such a Bank or Utility Company) then Hubdoc supports linking to this supplier directly so that new bills are automatically uploaded to Hubdoc when they are issued.

Hubdoc is therefore a document exchange portal which gives clients the flexibility to submit documents in different ways so that our staff can process these for you.

PLEASE DO NOT PROCESS TRANSACTIONS WITHIN HUBDOC YOURSELF.  On the receipt of sales invoices, purchase invoices, receipts, or expense claims into Hubdoc OUR STAFF WILL THEN PROCESS THESE FOR YOU.  Mileage claim forms can also be submitted via Hubdoc.  We have created a simplified template for expenses and mileage claims which has been saved to the Portal (Menu/Templates Factsheets/Templates-Xero Expense Claim Upload Template).

While not mandatory, in order to help us to ensure that we process documents that you submit into Hubdoc correctly we recommend creating the following “Tags” within your Hubdoc account and using these to classify transactions:

• Business (Not Yet Paid) – Business expenditure which has not yet been paid.
• Business (Paid by Company) – Business expenditure paid for using the Company Bank Account.
• Business (Paid Personally) – Business expenditure paid for using a Personal Bank Account.
• Emp Expenses (Paid by Company) – Employee expenses paid for using the Company Bank Account.
• Emp Expenses (Paid Personally) – Employee expenses paid for using a Personal Bank Account
• Invoice – Submission of sales invoices

FREEAGENT – HOW TO SUBMIT INVOICES ANED EXPENSES

We have created a simplified template for expenses and mileage claims which has been saved to the Portal (Menu/Templates Factsheets/Templates-Xero Expense Claim Upload Template).

Please submit invoices, expense claims, and associated support documentation to timeandexpense@qaccounting.com in line with our legacy process.

HOW TO SUBMIT TIMESHEETS AND RECHARGEABLE EXPENSES

Irrespective of which system you use (i.e. Xero OR FreeAgent) where you have subscribed to our invoicing or rechargeable expenses process please continue to submit timesheets and / or rechargeable expenses to timeandexpense@qaccounting.com in line with our legacy process.

PLEASE NOTE – PLEASE DO NOT SUBMIT INVOICES / EXPENSES TO BOTH HUBDOC AND timeandexpense@qaccounting.com AS THIS WILL CREATE A RISK OF DUPLICATION!

If you have any further queries, please contact us & we will be happy to help you.

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