John Davies & Co - Chartered Accountants - Wrexham - Expenses P11D Exemptions

Expenses P11D exemption PAYE settlements

Expenses Exemption

In the past, many businesses have applied to HMRC for dispensations. Dispensations have allowed expenses and benefits to be provided to employees without being included on a P11D or subject to PAYE and NIC.

A dispensation was only given where HMRC were satisfied that the employee would have been entitled to full tax relief on that payment or benefit.

From 6 April 2016 businesses will no longer be able to apply for a dispensation and all existing dispensations will come to an end.

Instead, a new exemption will be introduced which effectively means that businesses will not have to pay tax and NIC on paid or reimbursed expenses payments or put them on a P11D. The exemption is subject to the condition that the business satisfies itself that the employee would be entitled to full tax relief on that payment or benefit.

The main types of expenses to which the exemption applies are:

  •   travel and subsistence expenses

  •   fees and subscriptions

  •   business entertainment expenses

  • All other non-allowable expenses will still be reportable on a P11D and/or subject to PAYE (and possibly NIC). Employees will still be able to claim tax relief in respect of unreimbursed business expenses.

  • The new exemption does not apply to expenses or benefits provided under a relevant salary sacrifice arrangement.

  • Scale rates for meals whilst away from the office

As part of these changes, a second option is introduced, which allows amounts based on scale rates to be paid or reimbursed, instead of employees’ actual costs. The rates that can be used are either HMRC approved figures or figures specifically agreed with HMRC in writing.

Approved round sums

One meal allowance per day in respect of qualifying travel not exceeding:

  1. A)  £5 where the duration of the travel is 5

    hours or more.

  2. B)  £10 where the duration of the travel is 10

    hours or more.

  3. C)  £25 where the duration of the travel is 15

    hours or more and is ongoing at 8.00pm.

If the business wants to pay bespoke rates for this type of expense, it can apply to HMRC for approval and there is a specific form for this purpose which can be found on HMRC’s website; www.gov.uk/government/publications/paye- employer-expenses-and-benefits-exemption

Checking systems for scale rates

Employers must operate a system for checking that the employee is incurring and paying amounts in respect of expenses of the same kind and that tax relief would be allowed.

Mileage rates

Authorised mileage allowance payments (AMAPs) of 45p per mile and 25p (above 10,000 miles) paid to employees who use their own cars for business are a separate statutory regime and therefore remain exempt.

What to do now

The new system means that you may have to change what you have been paying or reimbursing your staff and/or apply to HMRC for new rates.

The changes are not simple, so we suggest you review your dispensation as soon as possible and if you would like to discuss any of these changes or would like help with applying to HMRC for new scale rates, please do not hesitate to contact Mike Webber.

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