EXPENSES - 30.03.2006

Expense rates grounded

Negotiations

Flat-rate expenses. If you want to pay an employee working away from home, say, £21 (the Taxman’s own rate) per night, tax-free for meals, refreshments and out-of-pocket expenses, you’ll have to agree this with the company’s PAYE tax office. If the Taxman considers that this rate is too high you will either have to justify it in more detail or suggest a lower figure until he agrees. But what if he just accepts it on the nod? Can he change his mind later and tax the payment? Case law suggests he can.

Recent case. In 2004, one of the Taxman’s employer compliance officers negotiated a new flat rate expense allowance with MyTravel airline, to cover costs incurred by employees not reimbursed by their employer. Unbeknown to the company or its advisors, the officer had never negotiated such an allowance before. The new rate was agreed in a letter in June 2004 at £2,275 a year (including amounts for the upkeep of uniforms and new luggage) for pilots and £1,580 for cabin crew (previously £525 and £140 respectively). Employees were also permitted to make backdated claims to April 1997 (six years). Very unusual.

Tax refunds. As a result, several MyTravel employees applied for tax refunds, much to the consternation of the Taxman. The company’s advisors became increasingly concerned that the Taxman would withdraw from the amounts stated in the June letter and, indeed, in November 2004 he did exactly that.

It’s not fair! In a Judicial Review, one of the claimants, an airline pilot, claimed that it would be unfair for the Taxman to withdraw from the agreement. The Taxman said it was against the public interest not to cancel the agreement, and hence allow back-dated claims.

A bit rich. In the High Court, the judge said that although it was a “bit rich” of the Taxman to withdraw from the June 2004 letter, it was not unlawful for him to do so with respect to all employees. The agreement was unusually generous, and it could be said to be in the public interest for him to cancel it. The application in general, i.e. in respect of all employees, was dismissed. (R (on the application of Bamber) v Revenue and Customs Commissioners Queens Bench Division December 21, 2005.)

Your move

Tip 1. Keep actual receipts for actual amounts, for a period of, say, one month. Then add up the total and average this out over the period. If this comes out to your £21 guesstimate then you have your balance of evidence. No one knows if over the course of the year anyone will profit from the £21 - there could be winners and losers, but your case is based on that one month.

Tip 2. Make sure you have a good audit trail from the payment to the individual back to the individual receipts. If these are routinely authorised by someone in authority, all the better. But have a referenced file of vouchers to hand just in case you are asked to support your claim.

Tip 3. There is also nothing in the Taxes Act that says you have to keep a receipt for every transaction, merely that records can be maintained. Have you ever seen a coffee machine give a receipt? So don’t forget to bring these into your calculation of actual subsistence expenses.