If you issue employees with any kind of staff clothing, uniform or workwear that is essential for their work and is clearly identified with a company logo, both you and your employees may enjoy tax benefits.
HMRC provides strict guidelines on what qualifies as workwear, so it’s essential to make sure the clothing meets their criteria before making any claims for a uniform tax rebate.
In this guide to uniform tax, our accountants explain the criteria for tax-deductible staff clothing and workwear, the type of tax deductions that are available, and how your business and your employees can claim them.
This is HMRC’s definition of a uniform that qualifies for tax rebates:
“A deduction can be permitted for clothing that is recognisably a uniform or part of a uniform, where the employee is required by his or her duties to wear it and must bear the cost of it. A uniform in this context means a set of clothing of a specialised nature that is recognisable as a uniform and is intended to identify its wearer as having a particular occupation.”
“Fixing a permanent and conspicuous badge to what would otherwise be ordinary clothing may be enough to make it a uniform, but each case must be considered on its merits. The essential test is whether the employee would readily be recognised as wearing a uniform by the person in the street. A detachable badge is not sufficient to make the clothing to which it is attached part of a uniform.”
Although HMRC quote police or nursing outfits as examples of recognisable uniforms, the tax benefits are not limited to specific uniforms. Workwear for carpenters, builders, mechanics and plumbers, for example, qualifies for tax uniform tax rebates. Staff working in stores or delivering goods may be required to wear specific, identifiable clothing such as polo shirts or hi-viz jackets with the company logo.
In that context, staff clothing refers to garments that an employee is required to wear to carry out their duties within work hours. HMRC also stress that these garments can only qualify for uniform tax rebates if they are wholly and exclusively for business purposes.
“You may be able to claim tax relief on the cost of:
cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots)
You cannot claim relief on the initial cost of buying clothing for work.”
Although HMRC is very specific about the types of uniform or workwear that qualify for treatment under uniform tax, a number of cases have ended up in court as there are grey areas within HMRC’s definition.
However, there are clear examples that will not meet HMRC’s criteria. For example, if an employee is required to wear clothing in a specific colour, such as a blue shirt or dress matching corporate colours, that would not qualify.
If an employee only wears a suit or tie at work, that would not meet HMRC’s criteria. If builders working for a company wear their own unbranded clothing on site, they cannot claim for cleaning, repairing or replacing it.
If you provide staff clothing, uniforms or workwear to your employees, you have a number of tax, National Insurance and reporting obligations related to the expenditure.
You won’t have to pay Corporation Tax or make National Insurance Contributions, although you may be able to claim tax relief in the form of allowable business expenditure.
You must report any expenditure made by the business if you purchase, lend, clean or repair qualifying staff clothing to HMRC. Use form P11D to report the expenditure as benefits to the employee.
However, if employees buy their own qualifying staff clothing and you reimburse them, your expenditure is covered by an HMRC exemption and you do not have to report it.
If you reimburse employees who pay, clean, repair or replace their qualifying staff clothing, you must deduct PAYE tax and Class 1 National Insurance contributions as a benefit to the employee.
Employees can claim uniform tax rebates for the cost of cleaning, repairing or replacing qualifying staff clothing if they pay the costs themselves and do not receive reimbursement from the employer. However, according to the HMRC website, you cannot claim for the cost of the initial purchase of the clothing.
Additionally, qualifying uniform expenditure cannot be regular clothes, it has to be for clothing that is recognisably a uniform or part of a uniform, where the employee is required by his or her duties to wear it and must bear the cost of it.
The rebate is paid at a rate equivalent to the employee’s income tax rate – 20 percent for basic-rate taxpayers and 40 percent for higher-rate taxpayers. Employees can backdate claims for the flat rate allowance for up to 4 years.
If an employee claims the flat rate allowance, they do not have to keep itemised receipts for the expenditure. However, they can also claim the exact cost from HMRC. In that case they must keep valid receipts.
HMRC provides the rebate by adjusting an employee’s PAYE code for the current tax year, which will increase the employee’s take-home pay.
If the employee submits any backdated claims, HMRC will either adjust the PAYE code for the current year or provide a refund.
Understanding all the rules and limitations on uniform tax claims can be complicated and time-consuming. Our team of small business accountants and solicitors are highly-experienced in helping small businesses with the preparation of claims and declarations for uniform tax rebates. For more tax advice, click here.