Allowable deductions for employee-related expenses

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

This guidance note covers the tax treatment of some common types of trading expenditure relating to employees. Some of these are disallowable under general principles, for example the wholly and exclusively test or capital versus revenue expenditure. Some are disallowed under specific statutory rules. For guidance on these, see the Adjustment of profits ― overview guidance note.

In this guidance note, unless otherwise stated, references to ITTOIA 2005 are relevant for sole traders / partners and references to CTA 2009 are relevant for companies.

Salaries and wages

The costs of employing staff is typically allowable provided it meets the criteria of being ‘wholly and exclusively’ for the purposes of the trade. This includes wages or salary, plus any benefits in kind.

Where remuneration is excessive, it is possible that a deduction may be challenged on the basis of not being for the purposes of the trade. This will normally only be applicable to remuneration of individuals who are connected to the business in some way.

When considering the level of remuneration, the whole package of remuneration,

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