P11Ds for directors

The recently updated booklet, IR69 Expenses Payments and Benefits in Kind - how to save yourself work, gives guidance about the application of dispensations to controlling directors of a company. The provisions of dispensations do not generally apply to such directors as they can usually authorise their own expenses. This means that all expenses paid or reimbursed to a director must be reported on form P11D at the year-end.

Dispensations are only issued to employers in circumstances where (1) the employees would be able to claim full tax relief if the payments and benefits were reported on form P11D, and (2) the employer monitors expenses claim forms to ensure that claims do not include disallowable items and that they are not excessive. In the case of controlling directors, the Revenue will now allow their expenses to be covered by a dispensation if they are subject to independent scrutiny before they are paid. The IR69 booklet, on page 4, states: "A dispensation may nevertheless be considered for controlling directors who decide their own expenses provided that there is independent documentation to vouch for the expenditure." For example, it may be possible for a director's expenses to be approved by the company's external accountants prior to payment.

The Revenue's internal Schedule E Manual (section SE30059) gives further guidance on levels of checking. The Revenue will accept that, in a larger organisation, a detailed check of perhaps one in ten claims would be sufficient. In small businesses, there may be no need for checking at all where the directors know all about the expenses that are claimed by their employees.

As for directors' expenses, the Schedule E Manual says that there is no reason why a dispensation in respect of reimbursements to a controlling director should not be approved for expenditure that

• is independently vouched, and
• is allowable as a Schedule E deduction (e.g. if necessarily incurred on travelling in the performance of the duties), and
• the Inspector is satisfied that no additional tax is at risk.

Payroll Briefing 2 - 20 June 2002

The UK Payroll News is sponsored by HRD & Payroll Solutions

Discuss this news item in the PayPerShop Forum