Do you have an Expenses Dispensation from HMRC?

A dispensation, once granted by HMRC, previously removed the requirement for relevant expenses to be reported to HMRC on form P11D.

From 6 April 2016, HMRC introduced an exemption from paying tax and National Insurance contributions on qualifying paid or reimbursed expense payments.

This means that where an employee is entitled to a fully matching tax deduction you will no longer need to apply for a dispensation, or report those expenses on form P11D. Therefore, you do not need to apply for an exemption if you’re paying HMRC’s benchmark rates for allowable expenses.

If you do have a current dispensation, then this won’t apply after 5 April 2016, but the expenses covered by it should also be covered by the exemption rules.You only need to apply for an exemption if you want to pay bespoke rates to your employees. You will have to give HMRC evidence that the rates you are suggesting are based on your employees’ actual expenses.

If you have already agreed bespoke rates with HMRC between 6 April 2011 and 5 April 2016 as part of your dispensation, you can apply to carry on using them. As a note, you can only use the bespoke rates for up to 5 years from the date they were agreed.