Expenses and benefits: tool allowances

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1. Overview

As an employer providing a tool allowance to your employees, you have certain tax, National Insurance and reporting obligations.

What’s included

A tool allowance is a payment you give to an employee to buy tools that are only used for work.

2. What to report and pay

Some tool allowances are covered by exemptions (which have replaced dispensations). This means you won’t have to include them in your end-of-year reports.

If you don’t have an exemption, you must report the allowance on form P11D.

If work tools are available for employees to use privately

The allowance you provide counts as earnings. You must:

• add the amount to the employee’s other earnings
• deduct and pay PAYE tax and Class 1 National Insurance through payroll

3. Technical guidance

The following guides contain more detailed information:

• Class 1 National Insurance: expenses and allowances - tool allowances

• particular benefits: accommodation, supplies and services on the employer’s premises