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HMRC internal manual

Employment Income Manual

Employment income: basis of assessment for general earnings: timing of expenses deductions

For employees in continuing employment you should allow deductions for expenses in the year the money is spent. The general rule for employees’ expenses provides for a deduction where the taxpayer has been obliged to “incur and pay” expenses (see EIM31620 onwards). Merely incurring a liability therefore is not enough; there must be an actual outlay.

Occasionally, an employee may pay a potentially allowable expense after the employment has come to an end – possibly even in the following income tax year. In such a case the deduction can be given in the year in which the unconditional obligation to make the payment arose (Milsom & Hinsley v HMRC, SpC569 at paragraph 67). That construction avoids the possibility of an employee incurring an allowable expense on, say, 1 April, paying it on 10 April and being entitled to no deduction. Enquiries into the timing of expenditure are best reserved for cases of doubt and the largest cases where substantial amounts are at issue. Even then resources are usually better spent in checking the expense qualifies for deduction at all rather than querying the year of deduction.