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Why you should still update your P11D dispensation

26 March 15 | By: Jas Jhooty

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With HMRC legislating for a new regime of automatic dispensations in Finance Act 2015, most employers will be breathing a sigh of relief that they won’t have to go through the laborious process of updating their dispensations again.

However as employment tax advisers we have grave concerns that this important defence against the taxman is disappearing without a Code of Practice being announced on the level of detail an employer is expected to retain to ensure their safety at the time of an Employer Compliance Review.

Statement of Practice 8/91

There exists a little known Inland Revenue Statement of Practice 8/91 based on the Cenlon and Olin tax cases that severely limits HMRC’s powers of discovery. The main points of this statement of practice are: -

  • Firstly, HMRC do not go back on a specific agreement made by an inspector on a particular point and raise a discovery assessment in respect of that point, whether or not the inspector correctly took account of current law and practice in entering into that agreement.
  • Secondly, in circumstances where it cannot be said that the particular point was the subject of a specific agreement, HMRC regards itself as bound by the inspector’s acceptance of a computation if the view of the point implicit in the computation was a tenable one.
  • HMRC does not regard itself as bound by any agreement made, or considered to be made, or any decision taken by an inspector, if any of the information supplied on which that agreement or decision was founded was misleading.

How this applies to dispensations

We utilise these principles in every dispensation application we prepare by disclosing details of every expense an employer provides to their employees. If certain types of expenses payments are not challenged they are deemed to have been accepted by HMRC and no subsequent HMRC official can challenge that acceptance at a later date.

Saving you money

As experts in the practical application of complicated employment tax legislation we can word your updated dispensation request to maximize savings. Our approach has been proven to save the employer money both in the short term and long term.

Working lunches

For example how many employers currently pay tax and National Insurance as part of their PAYE Settlement Agreement (PSA) on the grossed up costs of providing working lunches to their staff? We can make reference to this practice in the dispensation application letter and combine it with careful wording relating to the little known staff canteen exemption to guarantee employers’ savings in their annual PSA in relation to costs incurred in providing working lunches.

In the longer term the fact that every employer practice has been disclosed to HMRC and has not been challenged means that the door is closed to an opportunistic Employer Compliance Officer in raising unfair demands for tax and National Insurance at the time of the Employer Compliance Review.

Revocation of Dispensations

Finance Act 2015 will automatically revoke all existing dispensations for 2015/16 onwards. This fact is immaterial in relation to the principles contained in Statement of Practice 8/91. In nearly all cases HMRC do not include references to tricky areas such as working lunches in their returned dispensation document. But the fact remains that these types of practices have been disclosed to HMRC and have remained unchallenged thus barring any future discovery assessments on every single item referred to in the original dispensation application letter.

How emTax can help

It is vital that every employer makes full use of the remaining 12 months during which time HMRC will still continue to issue dispensations. As this article has detailed, it is not the received dispensation itself that is valuable, but instead it is the dispensation application letter that will continue to safeguard employers long after the automatic dispensation regime commences.

Our consultants are able to prepare bespoke updated dispensation requests on behalf of employers for a fraction of the price charged by the Big 4 accountancy firms. For more details about this or any other employment tax service, please do not hesitate to contact us.

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