UK Payroll - Important Changes to Dispensation from HMRC
Your dispensation will no longer apply after 5th April 2016, but the expenses covered by it should also be covered by the exemption. If you have agreed bespoke rates with HMRC between 6th April 2011 and 5th April 2016 as part of your dispensation, you can apply to carry on using them by clicking here. You can only use the bespoke rates for up to 5 years from the date they were agreed.
Expenses covered by an exemption
You don’t have to report certain business expenses and benefits like:
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
To qualify for an exemption, you must be either be:
- paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate* or a special (‘bespoke’**) rate approved by HMRC
- paying back the employee’s actual costs
*Benchmark scale rates are approved flat rates that you can pay to your employee for a particular expense, instead of reimbursing the employee’s actual costs. The benchmark scale rates are set as the maximum rate that employers can pay their employees for qualifying subsistence costs when travelling for work, without having to undertake a sampling exercise and agree a rate with HMRC. The benchmark rates will continue to be available under the new exemption and are set through regulations.
**Bespoke rates: The new exemption provides an option for employers to agree a scale rate with HMRC where they do not want to use the benchmark rates. These bespoke rates can be used for up to five years. If you would like to apply for a bespoke rate, you will need to provide HMRC with evidence, based on a sampling exercise, to demonstrate that your proposed rates are a reasonable estimate of the expenses actually incurred by your employees. Guidance on conducting a sampling exercise can be found in the Employment Income Manual.
You must deduct and pay tax and National Insurance on all other expenses and benefits you give to your employees, and report them to HMRC as normal.
Please note: If you pay a scale rate after 5th 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 part of your employee’s salary and pay it after deducting PAYE and NICs. If you wish to pay a scale rate without deducting tax and NICs you must either use the benchmark scale rates or apply to HMRC for approval.
You must have a system in place to check payments you make at benchmark or bespoke rates.
Your employees aren’t allowed to check their own expenses, so someone else within your company needs to do this to make sure they’re legitimate.
You should keep your employees’ receipts. You may be asked for more evidence if your receipts don’t include enough information.
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