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Employers – Do you have a dispensation from the requirement to complete forms P11D?

It’s coming up to the time to prepare Forms P11D

Forms P11D are returns made to HM Revenue & Customs (HMRC), by employers, detailing the expenses and benefits paid or made available to each employee in the tax year.  Such expenses and benefits are then taxable against the employee in question.  Expenses must be included, even if they are “allowable” for tax purposes.  However, each employee can then make a counter-claim for tax relief in respect of the legitimate expenses.  In other words, as far as allowable expenses are concerned, the whole exercise is completely pointless (other than allowing the taxman to keep an eye on what is going on)!

Ironically, in our experience it is often fairly easy to quantify taxable benefits.  The really time-consuming bit can be totting up all the allowable expenses, which are not actually going to result in any liability to tax or National Insurance Contributions.

What is a dispensation?

A dispensation is a notice from HMRC that removes the requirement to report allowable expenses on forms P11D.  Once granted, a dispensation lasts indefinitely (although HMRC review them regularly – usually at intervals of five years or less – to make sure that the conditions under which they were issued still apply).

What items can be covered by a dispensation?

In essence, you can apply to HMRC for a dispensation to cover expenses paid, to or on behalf of employees, where your rules for paying the expenses match the law governing their allowability for tax.  This might include, for example:

  • Business entertainment
  • Credit cards used for business purposes only
  • Fees and subscriptions
  • Telephones
  • Travel and subsistence
  • Certain types of car expenses

Systems you must have in place

You must have an independent system in place for checking and authorising expenses claims.  At a minimum, this means having someone (other than the employee claiming the expenses) to check that:

       i.            the amount claimed isn’t excessive, and

       ii.            the claim doesn’t include disallowable items.

In the case of very small companies, this check can often be made by the professional accountants as they prepare the annual accounts.

How to apply

To apply for a dispensation it is necessary to supply (to HMRC) details of the classes of expenses payments to be covered.  This can be done using an online form, or the paper equivalent.  In either case, HMRC aims to respond within 15 working days. 

You can apply for a dispensation at any time.  In general, dispensations take effect from the date on which HMRC issue them.  However, the Revenue may agree that your dispensation can take effect from the beginning of the tax year in which you applied for it.

Expenses Policy

On receiving a dispensation application, HMRC often request sight of the employer’s written expenses policy, so they can check that this matches the tax rules.  This might be in the form of a separate document, or it could be contained within a Staff Handbook, or some such. 

Conclusion

There are obvious advantages to obtaining a dispensation.  As well as less time input for you, it should make it easier for employees to monitor their annual PAYE Coding Notices from HMRC, and complete self-assessment Returns (where these are required). 

It may also impact favourably on the time costs incurred by the company in respect of accountancy fees (where, for example, professional accountants are normally instructed to prepare Forms P11D).

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