Tax deductions for personally owned equipment

Necessary for your job?

For many years HMRC’s approach to capital allowances (CAs) for employees and directors who used personally owned equipment for work was that unless their employer required them to provide it, no tax deduction was allowed because the equipment wasn’t necessary for the job. This was wrong and while HMRC’s view is now closer to what tax law says, it’s guidance is still unclear.

Job expenses v CAs

The general rule for employment expenses is that a deduction is only allowed if they are incurred “wholly, exclusively and necessarily in the performance of the duties...” of your job. This rule doesn’t apply to CAs. Instead, the only requirement is that the equipment is “…necessarily provided for use in the performance of the duties of the employment” . In other words, if the equipment is needed for the type of work you do you’re entitled to a tax deduction for the cost.

You’re entitled to CAs even if there’s no cost because you received the equipment as a gift. The cost of the equipment on which you can claim CAs is its value at the time you first start to use it.

In HMRC’s internal instructions it argues that if you choose to provide the equipment without checking if the company would pay for it or purchase an item for your convenience, i.e. it makes your job easier, no CAs are due. However, neither of these conditions is consistent with what the law says.

Example. Carl starts a new job as an accountant. This requires him to visit clients once or twice every week and involves transporting large bundles of documents. He spends £300 on a special auditor’s case which he uses for this purpose.

Even if the firm would be willing to pay for the case this doesn’t mean it isn’t necessary for doing his job. Neither does it matter that he could use plastic carrier bags instead.

The conditions that must be met are that, objectively, Carl needs some form of carrier for papers etc. while in the performance of his job.

Although he could carry them under his arm no one, not even HMRC, would consider that as a viable option. Therefore the objective “necessary” condition is met. Whether he spends £5 or £500 on a case is irrelevant, the law doesn’t concern itself with the cost of the equipment.

Notwithstanding the inadequacy of HMRC’s argument, if you’re an employee who has no control over your employer’s purse strings, it’s advisable to check if it would be willing to pay for the equipment. If so, you’ve saved some money and then at least HMRC’s bogus argument is unequivocally scotched.

Handling an HMRC challenge

In the unlikely event that HMRC challenges your claim for CAs for equipment you consider necessary for your job, you can rely on previous court decisions, such as in Telfer v HMRC which confirm that the test of whether it’s necessary is objective, i.e. realistically could you do your job without it. It’s not dependent on what your employer says.