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E4.420 Expenses paid by employer—overview

An employee may be able to set business expenses off against their earnings and thereby recoup some of the outlay through paying a lower amount of tax (although the rules are notoriously strict: see E4.707A). However, most employers wish to ensure that their employees are not out-of-pocket through incurring expenses for the purpose of the business, and may well have a less strict interpretation as to what constitutes a valid business expense (this mismatch has important consequences which are described below). The most common arrangement is for the employer to reimburse such expenses. Other arrangements include: paying a round sum allowance; settling a liability incurred by the employee directly with the supplier (that is, the employer meeting a pecuniary liability of the employee's); and the employer arranging with a supplier to provide something to the employee. The ramifications of each of these arrangements in terms of tax liability, national insurance contributions and reporting requirements is summarised below, with links to the relevant commentary.

Quite apart from the method of payment, and expense may