Taking Account

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Dispensations and benefits in kind

March 2009

If you provide any sort of beneficial payment or gift of goods to employees, generally speaking most will be taxable as a benefit in kind - as if they were payments of salary etc.

However there are some beneficial payments that you can include in a dispensation. For example the provision of certain business travel for an employee. Items covered by a dispensation do not have to be returned on the annual P11D form.(Payments for the use of a company car or van are not included here as they are covered by separate rules.)

Essentially you can apply to HMRC to dispense with the need to include expenses or benefits for which your employee gets a full tax deduction.

For some businesses this could take some of the pain out of this annual chore.

HMRC require that you need to have the following systems in place to qualify you for a dispensation, they are:

You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that:

  • the amount claimed isn't excessive
  • the claim doesn't include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims, for example, because you are the sole director of your company and you have no other employees, you will only be able to obtain a dispensation if you:

  • ensure all expenses claims are supported by receipts for the expenditure
  • demonstrate that the claim relates to expenditure that can be covered by a dispensation, your receipts may be sufficient for this purpose, but if not you must retain additional information.

Once a dispensation is granted it will last indefinitely although HMRC may review from time to time to make sure the conditions under which the original grant was made still apply.

Generally speaking dispensations are granted from the application date. However HMRC may agree to apply the dispensation from the beginning of the tax year in which you apply. It's not too late to apply for 2008-09, call if you would like assistance to do this.

Hilton Sharp & Clarke