SE31655 - The Schedule E expenses rule: incur and defray out of the emoluments

A deduction under Section 198(1) ICTA 1988 can only be made where an actual expense has been incurred and defrayed out of the emoluments. It is not necessary for an employee to demonstrate that an expense has been paid out of emoluments and not out of other financial resources that the employee may have. It is enough to demonstrate that the emoluments of a year are greater than the deductions to be made from those emoluments.

If for any year the employee has no emoluments from the office or employment no deduction can be made for any expenses incurred or defrayed in that year. It is not possible to deduct such expenses from other income, including income from other offices or employments.

The effect of this rule is illustrated by the example SE31658.