Accounting Blog

Deadline looms for HMRC dispensation changes

6th April 2016 sees HMRC’s move to scrap the need for employers to apply for dispensation when reimbursing work-related expenses incurred by each employee and director, earning over £8,500 per annum.

On the surface HMRC’s change in legislation would appear to spell good news for employers who will benefit from reduced paperwork and administrative procedures.  However, the responsibility for ensuring that expenses which are to be reimbursed are identified and taxed correctly where required will also fall to the employer.  Incorrect tax calculations pertaining to expense reimbursement will invariably incur penalties.

Whilst employers will find that any long-standing bespoke dispensation agreements which allowed for expense reimbursement at a higher rate (i.e. rates above the HMRC benchmark) will also be removed, they do now have until 6th April to re-apply to HMRC to reinstate the agreements.  This is not likely to be a short and fast process though!  Sampling exercises will need to be sent to HMRC through its Approval Notice system, so they can be reviewed before a decision is given.  Time is therefore of the essence as employers who do not reapply but continue to reimburse expenses at a higher rate are likely to incur an additional charge on the excess which was reimbursed.

In order to ensure not only that this legislative change can be incorporated as seamlessly as possible into the workplace, but that expense reimbursements are dealt with accurately, it is vital that all businesses with employees review their processes and systems now.

Finally, employers should also be aware that after 6th April HMRC will retain the ability to revoke any existing dispensation notice if it feels it is appropriate to do so.  The potential significance of this action means that internal processes within each business need to be reviewed and adapted if necessary to ensure total compliance.

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