If you're an employee (or employer on behalf of your staff) looking to claim relief on expenses such as travel, professional fees, or equipment, it is essential to understand these new guidelines and how they might impact you. At LWA, they’ve been closely following these developments, ensuring that their clients (including sports players) remain compliant while optimising their tax relief.
Key points from HMRC’s P87 announcement
HMRC now requires more robust evidence when submitting claims for tax relief on employment expenses, following identification of a growing tax risk driven by ineligible claims for employment expenses. This means that employees must provide physical proof, such as receipts or invoices, to justify their claims. It is important to note that although the P87 form is designed for employees whose income is under £150,000, higher earners may still need to complete a Self-Assessment (SA) form if their income exceeds this threshold.
The requirement to send evidence by post to HMRC adds an extra layer of administration. Therefore, both employees and employers must be diligent in maintaining accurate records of all work-related expenses. Expenses that are commonly claimed include:
- Travel costs incurred for work (excluding regular commuting)
- Professional fees or subscriptions to approved bodies
- Uniform or specialist workwear that is necessary for employment
- Equipment needed for job performance, such as tools or IT equipment to work from home.
Without proper documentation, HMRC may reject claims, delaying any potential tax relief and possibly triggering an audit.
When to use P87 vs. Self-Assessment
For those earning below £150,000 and claiming straightforward employment expenses, the P87 form remains the most accessible option. However, if your income exceeds this threshold or if you have multiple sources of income – such as from investments, freelance work, or property – completing a Self-Assessment is necessary to ensure that all income is declared, and tax relief is correctly applied.
While the P87 form allows you to claim back smaller amounts of tax relief directly through the PAYE system, higher earners and those with more complex tax situations should ensure their tax returns reflect all available reliefs, including expenses, through the Self-Assessment process. This is particularly relevant for those who may have more intricate employment or financial arrangements.
The importance of keeping detailed records when claiming employment expenses
In light of the new HMRC announcement, it is more important than ever to keep accurate and up-to-date records. Whether you're an employer reimbursing staff or an employee claiming work-related expenses, having evidence readily available is crucial. Employees should retain:
- Original receipts for all expenses
- Detailed logs of business travel, including mileage and dates
- Invoices for equipment or tools purchased for work purposes
- Proof of payments for professional fees or subscriptions.
For employers, it is essential to maintain a system for tracking and verifying employee expenses, ensuring that all documentation meets HMRC’s requirements. By doing so, you can help avoid delays in claims and ensure that any tax relief owed is promptly processed.
Effective date of new guidelines and claim processing delays
The new HMRC guidelines for claiming PAYE employment expenses will come into effect from 14th October 2024, following the announcement made on 7th October 2024. Additionally, HMRC has not been processing some claims for tax relief on employment expenses since 10th June 2024 due to suspension of the service while they reviewed what changes needed making to the process. This means there may be delays in processing any claims submitted as the new guidelines take effect.
Stay compliant and organised
Whether you’re an employee managing your own claims or an employer assisting your staff, being prepared with the correct documentation will save time and ensure compliance. At LWA, their expert Corporate and Personal Tax team is ready to guide you through the P87 claims process or help you determine whether Self-Assessment is necessary for your personal situation.
If you have any questions about claiming employment expenses or need advice on managing tax relief efficiently, please get in touch with their Manchester office on 0161 905 1801 or the Warrington office on 01925 830 830 or email them at mail@lwaltd.com. For information on the announcement in the meantime, visit Gov.uk here.