March 2008

Expenses for Employees

Normally, the payment or reimbursement of expenses or the provision of a benefit in kind is taxable on the employee. However, particularly with expenses, it may well be that the employee is entitled to tax relief personally on the same amount. In order to obtain the relief, the employee would have to write to HMRC or fill out a tax return.

To save all this paperwork, employers may request a dispensation from HMRC. If HMRC grant one, it means that they are happy that the reimbursement contains no profit element. In turn, this means that the expenses or benefits are not taxable but that the employee can not claim tax relief personally.

HMRC have issued a warning to employers regarding a change in their policy on dispensations. Normally, once a dispensation has been granted it would continue to apply until the qualifying conditions were no longer satisfied. If a dispensation had been operated incorrectly, it would only be revoked retrospectively in exceptional circumstances.

HMRC will now consider revoking a dispensation retrospectively where:

‘… there is any evidence of misrepresentation or negligence by an employer, or other person paying expenses or providing benefits in kind. Examples of this can include:

• if an application for a dispensation did not provide all the relevant information; or
• if there was a change in the way the expenses and benefits were made available to employees meaning the qualifying conditions were no longer met, and we have not been informed of the change. ‘

There are two important points to note. Firstly, HMRC state that this change will not affect the great majority of employers who apply for and operate dispensations correctly.

Secondly, if you don’t currently have a dispensation, please get in touch so that we can see if one would save you time (and money!)

Internet Link:

HMRC Employer Bulletin