Expenses and reimbursements
The legislation relating to the tax treatment of expenses is set out in Section 2 F of the Income Tax Act 1970.
This dictates that reimbursed business expenses payments, made to an employee, are treated as remuneration by virtue of their employment and are subject to ITIP deductions.
However, if a dispensation has been granted by the Income Tax Division, this removes the requirement for the employer to subject the reimbursement to ITIP deductions and also the requirement for the expenses reimbursed to be declared on a form T9.
In cases where an employer pays for an employee’s personal expenses and these personal expenses are not fully reimbursed back to the employer, a benefit in kind will arise.
Where expenses are reimbursed to employees on a round sum basis (i.e. not on a receipt basis), the employer must include the full amount in the gross pay and subject this sum to both tax and national insurance.
The following table outlines the different treatment applied to employee’s expenses. If an employer has an expense not shown below you should contact the Income Tax Division for further guidance.
|Type of Expense||Treatment|
|Round sum payments and reimbursements of non receipted expenses||Include in salary payroll and subject to tax and national insurance|
|Reimbursement of genuine business expense where no dispensation has been granted||Include in salary payroll and subject to ITIP deductions But do not subject to NI deductions - Report on form T9 and indicate that this has been included in gross pay on T14. Form T9 should be submitted with the annual employers return|
|Payment of non business expenses directly by employer where no dispensation has been granted||If the personal expense has not been repaid in full to the employer, then a benefit in kind charge will arise - Form T9 should be completed and submitted with the employer’s annual return|
|Reimbursement of genuine business expense where a dispensation has been granted||With dispensation agreement, reimbursements can be made without subjecting the repayment to tax and national insurance - No form T9 is required to be completed to indicate what expenses have been repaid and no claim should be pursued by the reimbursed employee|
|Reimbursement of business pence per mile rate at agreed Government pence per mile rates||No dispensation required. Reimbursements can be made without subjecting the repayment to tax and national insurance - No form T9 is required to be completed to indicate what expenses have been repaid and no claim should be pursued by the reimbursed employee|
If the reimbursement of expenses has not been paid via the payroll, it is important that you indicate that these expenses have not had I.T.I.P. deducted and are not included in the figure of total pay on the form T14. This should be clearly indicated on the benefit in kind form T9. This is not the correct treatment as all reimbursement of expenses should be paid via the payroll.