The End of Dispensations- Time to Act Now
As of yesterday, Dispensations will be history. However, if you have one and are relying on it for expenses paid in 2015/16, please don’t consign it to the ‘circular file’ just yet. Not only can you use your Dispensation to inform your reporting obligations in June/early July 2016, it will also help you if you are subject to an employer compliance review at some stage in the next six years. But also note that HMRC can still revoke dispensations granted before 6 April if its terms have not been followed.
So, with the new financial year now upon us, what should you be doing differently in order to fully comply with your 2016/17 reporting obligations? This partly depends, of course, on the expenses and benefits that you pay and provide.
Exemption from P11D reporting will apply for both benchmark rates and bespoke rates. Benchmark rates have been published by HMRC and cover expenses such as mileage allowances and subsistence costs.
If an employer wants to use bespoke rates then a sampling exercise must be carried out and an approval notice from HMRC obtained.
Note that if you pay a scale rate after 5 April 2016, which is not one of the benchmark scale rates, and has not been approved by HMRC, then you will need to treat that payment in the same way as salary and pay it after deducting PAYE and NICs.
Information on subsistence and scale rates was provided in our E-Alert issued on 24 February 2016.
Where a benefit is provided that would previously have been included in a dispensation, because tax relief is available, the exemption applies in the same way as to paid or reimbursed expenses. An example of this is the payment or reimbursement of an employee’s professional subscription, where the subscription is included within ‘List 3’. Please note, however, that benefits provided under a ‘relevant salary sacrifice arrangement’ are excluded from the exemption.
Employers will still need to have a system in place for checking that their employees are incurring and paying amounts in respect of scale rates and expense payments, and that a deduction would be allowed for those expenses.
Although the new legislation is wide ranging, it is important to note that there are a number of ‘benefits’ typically provided by public sector bodies for which no matching deduction applies. Because the legislation also includes anti-avoidance provisions it would be best to confirm with HMRC that the benefits provided are covered by the new exemption legislation and do not become taxable because the dispensation, under which they were ‘exempted’, is no longer valid.
As many readers will testify, historically it was possible to secure dispensations or ‘clearances’ for a diverse range of items simply by seeking a common sense approach from the tax office. Real client examples of ‘benefits’ included within dispensations are:
· Employer provided accommodation where the circumstances appear not to fully meet the criteria for exemption.
· Employer provided vehicles fitted with blue lights or other ‘emergency’ equipment where the use of the vehicle is arguably outside of the criteria for exemption.
· Facility to use a car park that is not adjacent to a workplace and therefore not clearly exempt under the terms of the exemption.
· Relocation related expenses and benefits made under a policy that does not precisely mirror the terms of the exemption.
· Provision of clothing and/or equipment which appear not to meet the criteria for exemption, at least by reference to HMRC guidance.
In such cases, to what extent should you be relying on an historic dispensation to justify non-reporting? We would caution against placing any reliance on these now redundant agreements and would suggest that other forms of assurance are sought.
You should review, in-depth, your current expense procedures and claim forms. How confident are you, in the absence of a dispensation, that the requirements of the new legislation can be met and that P11D reporting will be 100% accurate?
PSTAX would be happy to assist you in reviewing your expense/benefit policies and procedures and giving you the assurance that you require going forward. For assistance please contact a member of the team below.
|Duncan Groves||07760 firstname.lastname@example.org|
|John Harling||07768 email@example.com|
|Peter Minchinton||07484 firstname.lastname@example.org|