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A dispensation relieves an employer from the obligation to report on forms P11D or P9D any expenses and benefits provided for the employees, or groups of employees, as defined in the dispensation. The standard wording of a dispensation is provided in HMRC's Employment Income Manual, on page EIM30085. (www.hmrc.gov.uk/manuals/eimanual/EIM30085.htm)
A dispensation letter contains the following paragraph:
"The dispensation applies only to the expenses payments and benefits, set out below, in the circumstances there set out. If the expenses payments or benefits are paid or provided in circumstances which give rise to additional tax, this dispensation will need to be revoked. Where necessary, the revocation may apply to expenses payments and benefits already provided. In that case additional tax will be due. So it is important that you let me know if you alter your system for controlling expenses payments and benefits, or increase their amounts, or change their nature or make any other changes which may affect their taxability."
A dispensation ceases to be valid, therefore, if any of the conditions under which it was originally issued change. Employers should check every year that the details in their dispensation still relate precisely to their expenses and benefits policy, in particular that:
- expenses and reimbursement are precisely as stated on the dispensation
- the manner in which those expenses are paid or reimbursed has not changed
- the employees/employee groups defined in the dispensation are still correctly defined
- the financial limits or scale rates defined in the dispensation have not changed
- the employer's method of controlling expenses has not changed.
The employer's tax office should be advised of any changes at the time they occur; otherwise the tax office is entitled to revoke the dispensation retrospectively and require the employer to complete all the returns that would have had to have been completed if the dispensation had never been issued. In practice, a dispensation would only be revoked retrospectively in exceptional cases, i.e. where there has been serious negligence or misrepresentation on the part of the employer.
An exception to the requirement to notify changes applies where a dispensation covers expenses payments that are limited to agreed scale rates. The employer is permitted to increase the rates annually without obtaining HMRC's agreement as long as the annual increase is no more than the annual increase in the Retail Price Index for the same period.
The dispensation letter should be filed carefully so that, at any time, the employer can check whether the conditions under which it was issued are still valid or the controls are still in place. In the case of some employers, the person responsible for completing expenses and benefits returns changes each year. The original dispensation is lost and the terms of the dispensation are passed on by word of mouth. This is a dangerous situation for the reasons described above and an employer should not hesitate to ask the tax office for a copy of the current dispensation.
...back to 4 May 2006
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For Payroll and Human Resource Professionals
