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New changes to reporting employee expenses / abolition of P11d dispensations

19th April 2016

From 6 April 2016, business expenses that are paid to employees will become exempt from P11D reporting where they are reimbursed by employers, subject to certain conditions, with all existing dispensations will be abolished.

 

HMRC says ‘When paying or reimbursing qualifying expenses in full, employers do not need to apply to HMRC for agreement to do so, they need only satisfy themselves at the time of making the payment that the expense would be fully deductible Benefits that are only partially exempted will need to be put through the payroll in full and employees will need to claim a deduction on the exempt part.’

 

The new rules

 

  • Some expenses are now exempt from reporting such as travel, subsistence, subscriptions.

  • No dispensations will be issued by HMRC.

  • Employers must operate a system for validating employee expense claims, including those reimbursed by way of allowances.

  • New sampling rules apply to support employer requests for the agreement of bespoke allowances.

 

Scale rate payments

 

It is now a statutory requirement for employers to put in place a system to check that employees have incurred expenditure before they make a tax-exempt reimbursement by way of a scale rate payment.

 

  • HMRC benchmark rates.  In the case of subsistence, new regulations provide for allowances of £5, £10 or £25 depending on the duration of travel

  • Bespoke Rates.  Employer must provide evidence of ‘reasonable estimate of the amount of expenses actually incurred’. If satisfied, HMRC will issue an ‘approval notice’.

  • Industry sector rates. Employers will still have to apply for approval notice to use standard industry or sector-specific rates

  • Reimburse subject to tax and NIC.  This will be the only option for employers that now reimburse travel and subsistence expenses under arrangements by which earnings vary with the expenses payments.

 

Recommendations

  • Review and update reimbursement expense policies, documents and provide additional training for employees or managers involved in reviewing claims.

  • Review current dispensations to determine whether all the items will be covered by the new exemptions.

  • Determine where new agreements with HMRC will be needed.

  • Ensure your approach to partly exempt expenses or benefits is compliant.

It is recommended that all employers seek further professional guidance or refer to HMRC guides:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30200

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