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Blog: Tax Talk – Staff costs and reimbursed expenses

Date: December 4, 2018

By Nigel Holmes, Senior Tax Specialist at Catax.

I am often asked, why would a cost qualify if it is paid by the employee and reimbursed but not if it is paid directly by the company? The issue is not as simple as that, as shown below, as taken from HMRC’s own manuals:

“Under section 1123 (3) CTA 2009, the company may reimburse expenses incurred initially by an employee, and such reimbursement may constitute qualifying staffing costs in the following circumstances.

What we mean by ‘an expense the employee pays in order to fulfil the requirements of her employment’?

HMRC then go on to publish four helpful examples:

“Example 1

Example 2

Example 3

Example 4

So, as you will see, the mere fact that an expense is reimbursed is not sufficient, it has to:

  1. Be an expense incurred to fulfil the individual’s employment and;
  2. Relate to the R&D projects undertaken

Hence why if the costs were paid directly by the company they would often fail to meet the first criteria.

It is a complicated situation and does confuse clients who may wish to reconsider their expense policy, but merely allowing staff to pay for everything to boost an R&D tax relief claim will not have the desired effect as in this situation many costs will not have been incurred to fulfil the individual’s employment.

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