Many employees need to use and maintain special clothing for work purposes. They may incur costs of (for example) having their protective work clothing cleaned regularly. It would therefore seem fair and reasonable that such costs should be deductible from their employment income.
However, the tax system is not necessarily known for its fairness.
Is the cost deductible?
In the above example of cleaning costs for work clothes, the tax rules generally allow a deduction if certain conditions are satisfied. These are broadly:
• The cleaning costs are paid by the employee (or are paid on their behalf by someone else and are included in the employee’s earnings) (ITEPA 2003, s 333(1));
• The employee is obliged to incur and pay the costs as an employee; and
• The costs are incurred ‘wholly, exclusively and necessarily’ in the performance of the employment duties (s 336(1)).
These conditions appear straightforward but can be difficult for employees to satisfy in practice, in terms of demonstrating that the conditions have all been met.
Not enough evidence
For example, in Higginbottom & Ors v Revenue and Customs  UKFTT 291 (TC), three taxpayers (H, C and L) sought tax relief for the cost of cleaning and sanitising working clothes through their PAYE codings for various tax years. H was a drainage worker, whose work involved going in and out of sewers some 12 or 13 times a day. He washed his clothes after every shift, whether working at home or staying away. When washing his clothes at home, H used the household washing powder and fabric conditioner. His wife also bought disinfectant used only for washing his clothes and for H’s use in the bath or shower. No receipts were kept.
H’s estimate of expenditure (including an estimated proportion of utility bills, and for wear and tear of the washing machine and tumble dryer) for the relevant tax years was £2,200 per tax year. C’s and L’s estimated annual cost of washing work clothes etc. on cleaning products was also £2,200 (all three annual claims were for £2,200 because the taxpayers had been advised that if claiming relief for expenditure over £2,200 it would be necessary to submit a self-assessment return). HMRC refused the expenses claimed, and the taxpayers appealed.
The First-tier Tribunal had to consider whether the expenditure fell within ITEPA 2003, ss 333(1) and 336(1), and pointed out it must be satisfied that: (1) The amounts claimed were paid by the appellants; (2) The appellants were obliged to incur and pay those amounts as a holder of the employment; and (3) The amounts were incurred wholly, exclusively and necessarily in the performance of the appellants’ employment duties.
The First-tier Tribunal held that the appellants were not entitled to any relief over and above £60 per tax year, which HMRC were prepared to allow in relation to cleaning costs (see below). On the evidence, the tribunal was not satisfied that any higher figure was incurred on such expenses.
‘Flat rate’ deductions
For many occupations, a fixed expense deduction can be claimed to cover cleaning and laundry costs. The ‘flat rate’ deduction is intended to represent the average annual expense incurred in respect of the maintenance and repair of ‘work equipment’ (i.e. tools or special clothing), where the employee is responsible for the whole or part of that expense (ITEPA 2003, ss 366-367).
Flat rate deductions have been set by the government for many different occupations in respect of the maintenance of tools and special clothing that are necessary for employees to carry out their employment duties. For example, the flat rate deduction for joiners and carpenters is £140 per tax year, and for quarry workers it is £100 per tax year (for 2019/20). HMRC has published a table of flat rate expense allowances in its Employment Income manual (at EIM32712).
Not every occupation has its own specific flat rate deduction. However, if a deduction would otherwise be permitted for the cost of upkeep, replacement and repair of protective clothing or uniforms by the employee but no specific fixed amount has been set, HMRC will accept the sum of £60 (for 2019/20) as a reasonable estimate of the deductible expense (see EIM32485).
In Higginbottom & Ors, no specific flat rate expense allowance had been set in relation to the particular employments. The allowance for ‘other’ occupations of £60 (which has been in place since 2008/09) was allowed instead. HMRC accepted that the figure of £60 may be increased where there is evidence of the actual costs incurred. In practice, it is therefore important that employees wishing to claim a higher amount than the fixed rate expense allowance can establish the actual costs incurred by keeping adequate evidence, and can demonstrate that those costs were wholly, exclusively and necessarily incurred in performing the duties of their employments.
The above article was first published in Tax Insider (December 2018) (www.taxinsider.co.uk).