Will a crackdown on work expenses follow on from HMRC’s probe into employees’ use of tax relief?
Concerns have been raised that the recent HMRC probe into tax refunds for work expenses such as travel, laundering uniforms and professional subscriptions could result in a full crackdown by the Revenue.
HMRC’s consultation into work expenses was launched after the cost of the tax relief rose by a quarter in 5 years to £800m.
Employees can claim for the tax relief for expenses that have not already been refunded by their employer – these claims can amount to hundreds – or even thousands – of pounds for workers.
Although HMRC has stated that it has no current plans to remove the relief, the cost is significant. Therefore, the aim of the consultation is for HMRC to understand the uses of the tax relief – and ensure that it is being used in an appropriate way.
If the HMRC find that the relief is not being used in the way that it was intended, then it’s possible that the rules could change, and a subsequent crackdown on misuse could begin.
Indeed, in the consultation, HMRC points out that the rules for the relief were first introduced in the 19th Century, and so one of the aims will be to ensure that they are still fit for the modern economy.
One of the main reasons behind the increase in costs is thought to be a growing awareness that the tax break is available. Added to this, new technology, including online banking apps, allow taxpayers to keep better control of their finances, therefore allowing them to keep better track of what they spend on work-related activities on a day-to-day basis.
However, should the Revenue decide that the rules concerning the tax relief need to be reviewed or are being used in an inappropriate way by some taxpayers, then steps may be taken to counter this.
As many will be aware, HMRC has been under increasing pressure from the government to crack down on taxpayers who are not paying their fair share of tax. Anyone they view to be misusing the tax reliefs for out of pocket expenses may be at risk of an investigation by the Revenue. This could mean even innocent taxpayers could be investigated by HMRC.
Self-employed taxpayers in particular have been subject to investigations by HMRC on work-related expenses.
Tax investigations can be disruptive and costly; keeping clear records of expenses is an important way to avoid any suspicion from HMRC. Any taxpayer, who is unsure of what they can claim as part of the work expenses tax relief, should seek advice.
Our clients can protect themselves against the professional costs of most tax investigations by subscribing to our Tax Investigation service, allowing us to support them through tax enquiries without the added concern of the fees involved. For more information please contact Peter Warren, Jamie Nice or David Tallon.
This is intended as a summary and overview of the tax situation and does not constitute financial advice and no action should be taken without first seeking professional advice specific to your circumstances.