When a firm buys an AI tool it is a business cost. When its staff buy the same tool, it comes out of taxed pay

There are two tests in British tax law for whether money spent on work can be set against tax. Which one applies depends on who is spending it, and the difference is one word.

For a business

A company, or a self-employed person, can deduct a cost that is incurred wholly and exclusively for the purposes of the business. If something is partly personal, the business share can usually still be claimed. Software subscriptions are an ordinary allowable expense.

For an employee

An employee paying for something themselves has to meet a stricter test. The cost must be incurred wholly, exclusively and necessarily in the performance of the duties of the job.

Necessarily does the work. The Low Incomes Tax Reform Group, the charity run by the Chartered Institute of Taxation, explains it as meaning that any person performing the role would have to incur the cost. A cost you chose because it makes you better at the job, when a colleague does the same job without it, does not qualify.

In the performance of does the rest. The expense must be incurred while doing the job, not to put you in a position to do it. HMRC's own view, as the charity reports it, is that it would be rare for equipment someone buys to do their job to pass, because it usually does exactly that: it equips them.

So an AI subscription an employee buys on their own initiative will usually fail on both counts. The same subscription, bought by the employer, is a normal business cost.

The mismatch the rules already admit

If an employer reimburses an employee for an expense that would have qualified anyway, the payment is free of tax and National Insurance. The charity points out that the system also contains the reverse case: some expenses are tax-free when reimbursed but get no relief at all when the employee pays and is not reimbursed.

And the direction of travel is tighter, not looser. From 6 April 2026, an employee can no longer claim relief for the extra household costs of working from home unless the employer reimburses them, even where the employer requires it.

Where it may bend

The test turns on the role, not the person. If an employer requires staff to use a specific paid tool as a condition of the job and does not provide it, the cost is closer to one that anyone in the role would have to incur. That is a different case from a worker choosing a better tool than the one on offer, and it may qualify. It depends on the facts, and nobody should treat it as settled.

Two protections apply regardless. Unreimbursed work expenses may not reduce an employee's pay below the national minimum wage. And allowable unreimbursed expenses can be deducted from earnings for Universal Credit.

What the design produces

None of these rules was written with AI in view. What has changed is the scale of the behaviour they now govern. The system treats AI as the employer's tool, and prices it that way. About one worker in ten is treating it as their own, and paying accordingly.