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Tax, Accountancy and VAT

ACCA

Employees

Employees are limited in the scope for tax savings. The rules for deducting expenses are more restrictive than those for sole traders. The general rule is that the expense must be incurred "wholly, exclusively and necessarily in the performance of the duties of the employment". This compares with the test for the self-employed: "wholly and exclusively for the purposes of the trade".

This means that, for example, lectures attended by an employed history teacher were not allowable for tax, because, although attendance at the lectures increased the teacher's knowledge of his subject, a) it was possible to do the job without attending these lectures, and, b) the attendance was not in the performance of the duties, which were to teach in the classroom. (This is from the case Humbles v Brooks, 1962).

A sole trader on the other hand could probably claim for a similar expense, unless it was considered to be a private benefit.

However, there are a few opportunities for the employed to reduce their tax bill, particularly if their employer is flexible. Salary sacrifice (less painful than it sounds!) is one, which is often of benefit to the employer as well. It may also be possible to claim for some costs of working from home. Choosing whether to take a company car can also have significant tax implications.
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