Expenses and benefits for employers

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Exemptions and dispensations

You do not have to report some routine employee expenses to HM Revenue and Customs (HMRC). This is called an ‘exemption’.

Exemptions have replaced dispensations. You cannot apply for a dispensation any more.

Expenses covered by an exemption

You do not have to report certain business expenses and benefits like:

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

To qualify for an exemption, you must be either:

  • paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC
  • paying back the employee’s actual costs

You must deduct and pay tax and National Insurance on all other expenses and benefits you give to your employees. Report them to HMRC as normal.

Apply for an exemption

You do not need to apply for an exemption if you’re paying HMRC’s benchmark rates for allowable expenses.

You only need to apply for an exemption if you want to pay bespoke rates to your employees.

You’ll have to give HMRC evidence that the rates you’re suggesting are based on your employees’ actual expenses.

If you had a dispensation from HMRC

Your dispensation will not apply after 5 April 2016, but the expenses covered by it should also be covered by the exemption.

If your dispensation included bespoke rates and was agreed after 6 April 2011, you can ask to use the same rates when you apply for an exemption.

You can only use the bespoke rates for up to 5 years from the date they were last agreed.

Checking expenses

You must have a system in place to check payments you make at benchmark or bespoke rates.

Your employees cannot check their own expenses.

Tell your employees to keep proof of their expenses, for example receipts or bills, in case you need to check them.