HMRC tightens rules for expense claims
by Rebecca Cave – Tax Writer, Taxwriter Ltd
To discourage claims managed by high-volume agents, the form used to claim employment-related expenses will have more compulsory boxes.
Form P87 used to claim employment-related expenses will have more compulsory boxes from 21 December, which may deter spurious claims managed by high-volume agents (HVAs).
Taxpayers can make claims for employment-related expenses in the following ways:
- on their self-assessment tax return
- by phoning HMRC (subject to limits)
- complete, print and post a paper P87 form
- use the online P87 service accessed through their personal tax account.
No more substitutes
Before 7 May 2022 taxpayers could also use a substitute claim form or letter. HVAs would ask their clients to sign a substitute P87 form, which could include a deed of assignment to divert part, or all, of the tax repayment to the HVA. The Low Income Tax Reform Group (LITRG) has been campaigning against such tactics, which can dupe taxpayers out of tax repayments.
The new P87 form still allows the taxpayer to nominate that the repayment be sent to the tax agent (as is common with construction industry scheme tax claims), but any deed or letter of assignment must be submitted with a paper form P87. These paper forms will be subject to much more scrutiny by HMRC to check that all aspects of the deed are compliant.
Further refinement
HMRC has now realised that the new paper P87 is not being completed in full by many taxpayers. Where information is missing (such as the PAYE reference) HMRC staff have to search for the missing details before the form can be processed.
Regulations (SI 2022/1243) were passed on 29 November requiring the following sections of form P87 to be completed:
- Employee’s name, date of birth, and home address including the postcode
- Employee’s national insurance number, if they have one
- Amount and description of the expense claimed
- PAYE reference of the employer.
Where flat-rate allowances are claimed under ITEPA 2003 s 367, which are specific to defined industry sectors, a description of the industry must be included.
From 21 December 2022 any P87 forms that don’t include the required information will be rejected.
Working from home
Form P87 has been widely used to claim the flat-rate working from home (WFH) deduction of £6 per week (£26 per month).
The WFH deduction was widely prompted during the Covid-19 pandemic when many employees were required to work from home for all, or part, of their working time. HMRC did not require the employee to provide any evidence of the expenses incurred by the requirement to work from home, to support claims for the tax years 2022/21 and 2021/22. HMRC was also quite relaxed about whether the employee was required to work at home for part or all of their working week.
However, from April 2022 the conditions necessary to claim the WFH deduction reverted to almost the position that existed before the pandemic. The HMRC employment income manual (EIM32760) is clear that an employee can only claim a deduction from their employment income for WFH if:
- substantial duties of the employee are performed at the employee’s home
- there are no facilities at the employer’s premises for the employee to work
- the employee is required to work from home by their employer
- the employee has no choice about whether they work at home or not.
If all of the above conditions are met, the employee can claim a deduction of £6 per week, but only if the employer does not pay the employee a WFH allowance.
If the employee can show that their extra costs of working at home are higher than £6 per week, they can claim the actual costs if they keep the evidence. With electricity and gas bills at high levels, the costs of heating a room to work in at the employee’s home may well be more than £6 per week.
Expo question
During Tax Talk Live at the AccountingWEB Live Expo a member of the audience asked whether it would be right for an owner/director to claim the WFH deduction on his tax return, and also receive rent from his company for using a room in that director’s home. Rebecca Benneyworth and the other members of the panel agreed that this would be a “double dip” and not strictly ethical.
The panel members also warned about the risk that the room let to the company would mean that a part of the gain made on a subsequent sale of the home would not qualify for the capital gains tax main home exemption.
