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A quick guide to P11D dispensations
18 November 13 | By: Jas Jhooty
This guide explains how dispensations can remove the reporting requirements for certain expenses and benefits. It outlines the kinds of expense and benefit that can be included in a dispensation, and it also outlines how to obtain one.
What is a dispensation?
A dispensation is a notice from HMRC that removes a requirement to report certain expenses and benefits to them on the end of the year P11D & P9D forms. There is also no need to pay tax or NICs on any items covered by a dispensation.
What items can be covered by a dispensation?
You can apply to HMRC for a dispensation to cover expenses or benefits for which your employees can obtain a full matching tax deduction.
This includes many routine business expenses and benefits. To find out whether an individual item can or cannot be included in a dispensation see HMRC’s useful online A to Z expenses and benefits guide.
If there is no reference to dispensations in this guide then the particular item cannot be included in a dispensation.The main expenses routinely covered by a dispensation are:
- travel, including subsistence costs associated with business travel
- fuel for company cars – the amount paid should not exceed the Advisory Fuel Rates
- hire car costs
- business entertainment expenses
- credit cards used for business
- fees and subscriptions
Systems you must have in placeYou 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 check that the:
- amount claimed isn’t excessive
- claim doesn’t include disallowable items
- ensure all expenses claims are supported by receipts for the expenditure
- demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information
How to apply
You can apply for a dispensation by completing the online form P11DX.
You can also apply for a dispensation by way of a letter sent to
Specialist Employer Compliance S0561
PO Box 3900
Dispensations can be applied for at any time and can agreed by HMRC to apply from the beginning of the tax year in which they are applied for.
The future of dispensations
There are plans afoot highlighted in the recent Office of Tax Simplification interim report as part of its review of employee benefits and expenses to automatically apply dispensations for most businesses. Also employers will be able to apply for a retrospective dispensation to come into force from the beginning of a tax year up to 6th July following the end of the tax year.
How emTax can help?
Recently HMRC have started a policy to write to all businesses where their existing dispensation is over 5 years old to check whether it is still valid and is being strictly adhered to. This is also seen as an excuse to see how robust your existing expenses policies and procedures are. If you decide to not reply or to ignore this request then more often than not HMRC will revoke the dispensation and put a note on their internal systems to highlight that all expenses should now be recorded on next year’s P11D forms. You will also be at a much greater risk of a being targeted for an earlier Employer Compliance Review than you would otherwise have been.
If you have recently received such a request from HMRC do not hesitate to get in touch with us. Our consultants are all ex-HMRC and have each served as senior employment tax managers for the Big 4 accountancy firms. As such we have extensive experience of liaising with HMRC to obtain the most comprehensive dispensations for our clients that have been proven to help to safeguard them at the time of their HMRC Employer Compliance Reviews.