October 6, 2021
Tax Tagging: is it a good idea for your business?
By: Peter Gregory
If you supply uniforms to your workforce, you may have heard about the practice of tax tagging. Tax tagging could save your employees time, money and paperwork on legitimate uniform expenses. It could also land you in hot water with the taxman if you misinterpret the rules.
In this guide, we’ll explain what tax tags are and why they exist. We’ll share some typical tax tag situations with you, and help you decide whether this practice can work for your business.
If an employer in the UK buys uniforms for their employees, those clothes cannot be worn outside of work. Otherwise, employees have to declare that uniform to the taxman as a fringe benefit … and they may have to pay tax on it.
In most cases, you can ‘prove’ an item of clothing is a work uniform just by adding an employer’s logo to it. This might be a big screen-printed logo, a woven badge or a patch of embroidery on a jacket breast pocket. There are, however, some situations where a big logo just wouldn’t look right on a piece of uniform. That’s where tax tags come in.
Tax tags are discreet workwear labels that bear your company’s logo. They have to be permanently attached to the outside of each garment. They also have to clearly identify that garment as part of a uniform. By sewing a tax tag into a uniform, you’re proving to the tax man that these clothes are not for employees to wear in their spare time.
Tax tagging can simplify the tax burden of your uniform expenses, but you have to tread carefully. Not every item of workwear needs a tax tag (for instance, PPE is tax-free). In some cases there are more appropriate ways to ‘prove’ that your uniform is worn only for work.
According to HMRC, uniform is defined as “…a set of clothing of a specialised nature that is recognisable as a uniform and is intended to identify its wearer as having a particular occupation.” (source: HMRC.gov.uk).
If your staff uniforms match the above description, then you can treat uniforms as a business expense. Your employees will be able to claim a tax deduction on any uniform they buy.
If, on the other hand, your staff uniforms don’t quite fit the HMRC definition, then you need to tread carefully.
You might decide that your uniform’s clothes are not of a specialised nature, not recognisable as uniform, and/or don’t make it clear what the occupation of the wearer is. If this is the case, then these clothes are treated as a taxable benefit in the eyes of the taxman. HMRC will treat the uniform you bought for your staff as a ‘perk of the job’ that benefits your employee in lieu of cash (…because the clothes could realistically be worn outside of the workplace).
In essence, uniform needs to be permanently branded with the employer’s logo, otherwise it doesn’t count as uniform.
HMRC’s website offers two good examples of how their uniform rules are applied in practice:
If you have permanently branded your uniform with a conspicuous logo, then the tax man will probably accept that these clothes are just for work.
If, on the other hand, you ask all your employees to just wear the same colour clothes, without any permanent branding on each garment, then this uniform will be taxable.
The simplest way around this is to brand each part of the uniform with a permanent tag that effectively ruins the chances of the item being worn outside of work. This is what a tax tag is there to do.
The term ‘tax tag’ is industry slang. it’s not an official HMRC-approved concept. There is no official formal guidance on when and how to use tax tags. HMRC reviews every uniform/benefit case on an individual basis, so it’s up to you to make sure that – if you choose to add a tax tag to your uniforms – it really does elevate your clothes to ‘uniform’ status.
A tax tag is usually around a square-inch in size and almost always bears the logo of the employer. For it to count as a permanent tag, it has to be stitched into the seam of the garment — you can’t just pin it on. That’s why tax tags often end up as hem tags in waistbands, sleeves and shirt pockets.
You shouldn’t have to search every inch of fabric for a tax tag. The tags have to be placed in prominent locations on the exterior surface. The whole point of the tax tag is to make it clear that your garment is part of a uniform, so don’t hide it away!
Tax tags exist for situations where an employer’s branding needs to stay reasonably discreet. Tax tags normally find their way onto suits, dresses and skirts. For instance, many large retailers will tax tag their store manager’s suits. Waiters and waitresses may also need tax tags on their uniforms, depending on what their uniform is made up of.
The law is pretty sensible when it comes to what counts as uniform versus personally-expenseable clothing. Official HMRC guidance on uniform (see here) states that “The essential test is whether the employee would readily be recognised as wearing a uniform by the person in the street.” In other words, you can’t just put a tiny half-inch label on a shirt and suddenly call it ‘company workwear’. Tax tagging rules are there to serve a purpose — they’re not there to help companies cheat or fiddle the tax system.
If you’re still unsure about whether a tax tag would work for your business, there are alternatives. For instance, a woven badge could actually work much better for your uniforms.
With a woven badge, you can put a smooth, clean, bold brand statement on a breast pocket, sleeve or cap front. A fabric badge can be fixed on at a relatively low cost (sew, stick or iron-on). It can also look much smarter than a tax tag. As a rule, the bigger the logo, the better your chances of staying on the right side of HMRC, so bear this in mind!
If in doubt, talk to your accountant before placing an order for tax tags. Your accountant can walk you through the legal side of things and explain the likely costs and savings involved. If you need a quote from us, we’re always happy to help — just get in touch via our contact page.
Thanks for reading!