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HMRC internal manual

Employment Income Manual

Employment income: round sum expense allowances

Section 62 ITEPA 2003The payment of a round sum expenses allowance to an employee by his or her employer is taxable as earnings within Section 62 ITEPA 2003 (see

EIM00520 onwards). PAYE applies to such payments.

A round sum expenses allowance is an allowance which is paid to an employee irrespective of whether he or she spends it or not in a particular way. It is to be contrasted with a reimbursement of expenditure actually incurred by an employee and with a scale rate payment intended to reimburse such expenditure (see EIM05200).

Fergusson v Noble (7TC176) supports our view that a round sum expense allowance is taxable as part of the employee’s earnings. In that case, a detective received a cash allowance for buying civilian clothing whether it was spent or not. It was held to be taxable because it was part of the consideration that the detective was entitled to receive in return for his services. It did not matter that he was expected to spend the money in a particular way.