Well, the P11d dispensation !
An employer is required to inform HMRC of all expenses paid to an employee, even if those expenses are incurred in the performance of their duties and on the employers’ behalf – wholly, exclusively and necessarily. This means that the employee has no choice but to incur those costs in order to do their work. These costs are entered onto the employees P11d (see blog post at https://performanceaccountancy.co.uk/that-p11d-time-of-the-year/) and on the face of it, increases the income for the employee. The employee then needs to submit a tax return in order to counter-claim the value as costs of employment. That makes the tax effect net out. Of course, if the counter claim is not done in a reasonable time from the submission of the P11D, the employees tax code is amended and for a couple of months, the employee will be paying too much tax until the tax return is accepted and the PAYE code changed again.
What a palaver. The above is all a bit of a fuss and fuddle, so HMRC has seen sense and they do offer a dispensation process for having to declare certain benefits and expenses on tax returns etc. Some cannot be covered by a dispensation for example cars, gym membership, healthcare etc. This then makes the completion of the P11D and P9D a lot easier. Once a dispensation has been granted, then it lasts indefinitely although HMRC does review them on a regular basis. The dispensation also removes the requirement for employees to submit claims to HMRC. The main area of spend routinely covered by the dispensation are travel including subsistence costs, business entertainment, use of phone and credit cards usage.
The great thing about having the dispensation is if you have a lot of expense claims in your business, you won’t have to keep track of all the payments to employees and analyse them out into types of spend. You also time to complete the forms & then submit to HMRC. Even if you get an outside resource to do the fling, they are still going to cost money.
But – from April 2016, the dispensation has disappeared. Oh no. Under new legislation, there is a statutory exemption for reimbursed expenses so they do not have to be on the P11d / P9d and therefore do not have to be counter claimed on the employee’s tax return. However, non-allowable expenses will still need to be put through the P11D system, or put through on the payroll with tax & national insurance deducted. If an employee is not refunded tax allowable expenses, then they can still be claimed via the tax return system.
This whole thing does not affect the benefits that would usually go on the P11d/P9d. What is covered by the end of the dispensation? It exempts expenses and benefits that would otherwise be deductible from earnings under ITEPA 2003 Chs 2, 5 of Pt 5, or Ch 3 of Pt 5, such as travel and subsistence expenses, business entertainment and professional fees and subscriptions.
What’s the catch?
It does mean that employers (yes that includes the owner/director companies) need to ensure their internal systems are up to scratch in case HMRC want to review the expense reporting. There is now a statutory requirement for the employer to validate expense claims based on actual receipts or validate the allowances claimed.
Care does need to be taken when a company reimburses an employee the whole cost of something where there is a personal element to the cost. The typical example is a phone bill. The phone is in the name of the employee, but the company allows the employee to expense the bill to the business. The deemed business element will be covered under the new rules for a deduction, but the personal cost of the phone would need to appear on the P11d as an expense reimbursement. Where there is a split between personal and business costs, they need to be documented fully and justified if requested.
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