Business Expenses Covered by Exemption
HMRC introduced a system of ‘exemption’ on some expenses and benefits for employers. There is no need to report ‘routine employee expenses’.
The business expenses and benefits you no longer need to report include:
- Business travel and entertainment expenses
- Phone bills
- Uniform and tools for work
Note: The exemptions on PAYE expenses and benefits have replaced the dispensations. Employers can no longer apply for a dispensation.
As an employer, there are several ways you can qualify for an routine employee exemption. You must (either):
- Be paying back the actual costs to the employee.
- Be paying a flat rate to the employee as part of their normal earnings. If so, it must either be a benchmark rate or one of the HMRC approved special ‘bespoke’ rates.
Note: All other expenses and benefits given to employees are subject to tax and National Insurance. You need to report and pay tax on benefits in kind in the normal way to HM Revenue and Customs.
Applying for an Exemption
If you pay HMRC benchmark rates for allowable expenses there is no need to apply for exemptions. Applying for an exemption is only necessary when paying bespoke rates to employees.
Note: Use the employers exemption form to apply for a new bespoke scale rate on non-taxable expenses and benefits. HMRC will need evidence that you are basing the rates on the actual expenses for your employees.
Previous Dispensations from HMRC
Any dispensation you had before 6th of April 2016 would no longer apply. But, the new rules on business expense exemptions should now be covering it.
You might have agreed bespoke rates between the 6th of April 2011 and the 5th of April 2016 with HM Revenue and Customs as part of a dispensation. If so, you can use the same employers exemption form to make another application to continue using them.
Note: Employers can only use bespoke rates for up to five (5) years from the date they were originally agreed.
Checking Expense Payments
Employers need to have some system in place that checks payments made at benchmark or any bespoke rates.
Employees are unable to check their own expenses. Thus, someone within the company needs to be checking the expenses to ensure they are correct and legitimate.
It is good practice to have employees keep proof of their own expenses and benefits. So, they should be keeping receipts and bills in case they need checking at a later date.
ALSO IN THIS SECTION
Record Keeping and Deadlines | Check what files to keep and deadlines for submissions and payments.
Expenses and Benefits for Employers | Obligations for dealing with employment related benefits (BIK).