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Expenses Clause in UK Contracts: What It Means & Example Wording

An expenses clause sets out the employer's policy on reimbursing business expenses incurred by employees in the course of their duties. This typically covers travel, accommodation, subsistence, client entertainment, and other costs necessarily incurred for business purposes. In the UK, HMRC has specific rules on which expenses can be reimbursed tax-free and which are taxable benefits, making clear contractual terms essential for compliance.

Last updated: February 2025

When to Include a Expenses Clause

In every employment contract to set expectations about what expenses will be reimbursed and the process for claiming them
In contracts for roles that involve regular travel, client visits, or working away from the normal workplace
In freelancer and consultancy agreements to specify whether the fee includes expenses or whether they are reimbursed separately

Example Wording

The Company will reimburse you for all reasonable business expenses properly and necessarily incurred in the performance of your duties, subject to the Company's expenses policy as amended from time to time. You must submit expense claims within [30] days of incurring the expense, supported by valid receipts or other evidence of expenditure. The Company reserves the right to reject claims that do not comply with the expenses policy or are not supported by adequate evidence. Expenses will be reimbursed through payroll within [X] days of an approved claim. Note: This is illustrative wording only and should be tailored by a qualified legal professional.

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Expenses Clause Enforceable in the UK?

Expenses clauses are enforceable as contractual terms. HMRC's rules on tax-free reimbursement are set out in the Income Tax (Earnings and Pensions) Act 2003. Expenses that are incurred 'wholly, exclusively and necessarily in the performance of the duties of the employment' can be reimbursed tax-free. Employers can also use HMRC-approved benchmark rates for subsistence and mileage (the approved mileage allowance payment of 45p per mile for the first 10,000 miles, 25p thereafter). Reimbursements that exceed HMRC limits or cover non-business expenses become taxable benefits that must be reported on P11D forms.

Common Mistakes

Reimbursing expenses without adequate receipts — HMRC may disallow tax-free treatment if expenses are not properly evidenced
Not having a written expenses policy — relying solely on the contractual clause without a detailed policy creates inconsistency and disputes
Failing to distinguish between genuine business expenses and taxable benefits — for example, travel from home to a permanent workplace is not a reimbursable expense for tax purposes

FAQ

What expenses can be claimed tax-free in the UK?

Expenses that are incurred 'wholly, exclusively and necessarily' in the performance of your duties can be reimbursed tax-free. This includes travel to temporary workplaces (but not your normal commute), business-related accommodation, subsistence when away on business, and professional subscriptions. HMRC publishes benchmark rates for certain categories.

Can my employer refuse to reimburse a business expense?

If your contract or expenses policy requires reimbursement of legitimately incurred business expenses, the employer should reimburse them. However, the employer can reasonably refuse claims that do not comply with the policy, are not supported by receipts, or were not pre-approved where required. An employer cannot contractually refuse to reimburse expenses that were necessarily incurred in the course of employment.

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This is guidance for UK businesses, not legal advice. Example wording is illustrative. Consult a solicitor for complex matters.

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