Reimbursing Employee Expenses: UK Tax Rules and 2026 Changes Employers Must Know

Introduction

Employees often pay for certain work-related costs while carrying out their job duties. These costs may later be claimed back through the employer’s expense reimbursement process.

However, it’s important for both employers and employees to understand that reimbursed expenses can sometimes create tax implications, depending on whether the expense is allowable under HMRC rules.

This guide explains when reimbursed expenses are tax-free, when they become taxable, and the important exemptions coming in April 2026.

1. When Reimbursed Expenses Are Tax-Free

In the UK, a tax exemption applies to many paid and reimbursed employee expenses.

This exemption is available when the expense would have been fully deductible if the employee had paid it personally.

In simple terms, the expense must meet HMRC’s standard test:
It must be incurred wholly, exclusively and necessarily in the performance of employment duties.

2. Examples of Allowable Expenses

Some common work-related costs can qualify for tax relief, such as:

• Travel costs for work duties (e.g., visiting a client site)

• Certain business-related subscriptions

• Fees paid to professional bodies approved by HMRC

• Specific work-related travel and accommodation costs (where rules allow)

For example, if an employee is required to attend a meeting at a client’s office, the travel cost is normally allowable.
So, if the employer either:

• pays the cost directly (e.g., buys the train ticket), OR

• reimburses the employee after they pay it

then the reimbursement is usually tax-free.

3. When Reimbursed Expenses Become Taxable

Not all employee expenses qualify for the exemption.

If the expense is not tax-deductible, then any reimbursement made by the employer becomes a taxable benefit.

A common example is:

Home-to-work travel (ordinary commuting)
Even if an employer reimburses it, HMRC treats this as a personal cost, not a business expense.
So, the reimbursement would normally be taxable.

4. Why Some Reimbursements Create “Unfair” Tax Outcomes

Currently, the UK tax rules contain certain anomalies.

In some situations, an employer can provide a benefit tax-free — but if the employee pays for the same thing and gets reimbursed, the reimbursement becomes taxable.

A well-known example is:

Eye tests and corrective appliances

• If the employer provides the eye test directly → usually no tax charge

• If the employee pays for the eye test and is reimbursed → often taxable

This happens because the employee is not entitled to claim a tax deduction for the eye test cost, meaning the reimbursement fails the exemption test.

5. Important HMRC Changes From 6 April 2026

To remove these inconsistencies, the government is introducing new exemptions from 6 April 2026.

These exemptions will ensure that no tax charge arises when an employer pays for or reimburses employees for specific benefits.

The new tax-free exemptions will cover:

• Eye tests

• Flu vaccines

• Homeworking equipment

This change will align the tax position so the outcome is the same whether:

• the employer provides the benefit directly, OR

• the employee pays and is reimbursed

Conclusion

Reimbursing employee expenses is a normal part of business operations, but the tax treatment depends entirely on whether the expense is allowable under HMRC rules.

The upcoming changes from 6 April 2026 are a positive step, especially for employers who reimburse eye tests, flu vaccines, and homeworking equipment.

To avoid unexpected tax liabilities, employers should review their expense policies and ensure reimbursements are processed correctly.

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