Q&A - should we deduct tax from expenses?

Q. We know that expenses we reimburse our employees which aren’t wholly and exclusively for their jobs must be taxed through PAYE. However, a new employee is insisting on being paid a sum in advance of expenses meaning that we don’t know exactly what it will be used for. Do we have to apply PAYE to it?

A. You can defer making your decision on whether PAYE tax and NI (employees’ and employers’) apply to an advance of expenses until your employee gives you their expenses claim with details of what they’ve spent the money on. What’s more, as long as the advance is for no more than £1,000, and is spent or repaid by the employee within six months, it doesn’t count as a taxable perk.