Exemption for paid or reimbursed expenses (480: Chapter 2)
Find out about exemptions for paid or reimbursed expenses that were previously covered by a dispensation.
2.1
Section 65
From 6 April 2016 all dispensations stopped. Almost all expenses or benefits that might previously have been covered by a dispensation will be within an exemption and will not need to be reported. Where the employer is satisfied that either all the expenses or benefits, or both, that they provide would be fully covered by the expenses exemption they do not need to show these on forms P11D or deduct tax if they payroll benefits.
Common items that will be covered by the exemption include:
- travel, including subsistence costs associated with business travel
- business entertainment expenses
- credit cards used for business
- fees and subscriptions
The exemption does not apply to expenses or benefits that are paid or given under a salary sacrifice agreement.
2.2
Employers wanting to pay or reimburse employee expenses using the Income Tax (Approved Expenses) Regulations – previously the benchmark scale rates – will need to have a checking system in place to make sure payments are only made on occasions where the employee would be entitled to a deduction and incurred an amount for expenses on that occasion.
From 6 April 2019 employers will no longer need to operate a system for checking an employee’s expenditure in order to make payments free of tax in relation to expenses paid or reimbursed using benchmark scale rates.
Instead, employers will only need to make sure that employees are undertaking qualifying travel on occasions for which a payment is made or reimbursed and that neither the employer nor any other person knows or suspects, or could reasonably be expected to know or suspect, that travel was not undertaken.
Employers wanting to use a bespoke rate can apply to HMRC for an approval notice. They’ll need to undertake a sampling exercise to help determine the rate to apply, and will also need to have a checking system in place.
2.3
Approval notices will apply for up to 5 years, but may be subject to review from time to time. HMRC can revoke an approval notice if they consider that the employer has not met the conditions of that notice or has been negligent in its operation. If HMRC revoke an approval notice the employer will need once again to report these on forms P11D after the end of the tax year or payroll them if they’ve registered to payroll benefits.
2.4
There’s a statutory tax exemption for Mileage Allowance Payments (MAPs), which if paid below a certain amount will not produce a liability to employees. Consequently such payments are not covered by the exemption. MAPs in excess of the exempt amount are taxable (see chapter 16). The exemption does not apply to ‘round sum’ expense allowances.
2.5
Where the exemption applies, PAYE does not apply to the payments or benefits concerned. The employer doe not to show the particular payments or benefits on the annual returns (forms P11D) they make to HMRC (see chapter 24), and the employee does not need to show them in their tax return.