Tax free payments to employees to cover laundry and other cleaning expenses
It is often not appreciated that an employer can pay his employees tax free allowances for the cost of washing or dry cleaning clothes they are required to wear for work. However, this applies only where the clothes count either as ‘protective clothing’ or as ‘uniform’.
Protective clothing means items such as overalls, gloves, boots and helmets, which the employee has to wear in order to be able to work safely. However, HMRC does not accept that warm clothing for working in exceptionally cold conditions is ‘protective’, or that high visibility clothing necessarily qualifies.
A uniform can be either clothing that anyone would recognise as workwear for a particular job, such as a nurse’s uniform, or clothing on which the employer’s name or business logo is prominently displayed. In the latter case, it is not sufficient for the clothing to be in corporate colours, or for the employer’s name to appear on a clip-on badge, or on a label sewn inside a jacket etc. There must be a label sewn on the outside. Each item of clothing is considered separately – thus if a shop assistant is required to wear a matching jacket and skirt, but only the jacket displays the employer’s name, then only the jacket will count as ‘uniform’ for tax purposes. (And they say tax doesn’t have to be taxing…)
The tax rules for cleaning expenses are the same whether the employer provides the protective clothing or uniform, or whether the employee has to buy his own. The employer can either reimburse against receipts for amounts actually spent (for example, where clothes are dry cleaned) or pay a flat rate cleaning allowance of up to £60 a year (£5 a month), for example where overalls are washed at home.
If the employee earns less than £8,500 a year, such payments are simply not taxable. However, these days that will only apply to part-timers and some apprentices. Otherwise, strictly speaking the payments should be reported as reimbursed expenses on Forms P11D and the employees should claim corresponding deductions. In practice, it will be more convenient to agree a ‘dispensation’ with HMRC – shortly put, if HMRC are satisfied that the payments qualify to be made tax free under the above rules, it will agree that they need not be reported on Forms P11D.
In any case, payments made by the employer to reimburse the cost of cleaning qualifying protective clothing and uniforms are not subject to employer’s or employee’s National Insurance contributions.
Workwear provided by the employer. A related point is the tax position where an employer provides workwear for his employees, If this qualifies as ‘protective clothing’ or ‘a uniform’ under the above rules, the same tax and NIC treatment applies as for cleaning expenses – namely that the employer should include as a benefit-in-kind on the employee’s P11D, unless a dispensation is agreed, but no National Insurance contributions will be due. If the clothing is given to the employee, the reportable amount is the cost to the employer, but if the clothing remains the employer’s property, an amount equal to 20% of the cost should be reported each year the item is worn.