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HMRC internal manual

Employment Income Manual

Dispensations: general (continued)

Section 65 ITEPA 2003

The guidance on this page applies for the tax years up to and including 2015-16.  For tax years 2016-17 onwards dispensations have been replaced by an exemption for amounts which would otherwise be deductible. See EIM30200 onwards.

Before the Officer of HMRC can issue a dispensation the person paying the expenses or providing the benefit has to say what the circumstances are in which payments of a particular sort are made or what benefits are being provided. If there is reason to do so the Officer can cancel a dispensation at any time.

Dispensations can also be given in respect of the provision of vouchers and credit tokens for employees for 2015/16 and earlier in an excluded employment (see EIM20007), for which there are specific rules in relation to dispensations in Section 96 ITEPA - see EIM16180. The benefit of provided living accommodation cannot be included in a dispensation because this benefit is not one of the “listed provisions” (s65(2)) to which a dispensation can apply and, unlike vouchers or credit tokens, there are no specific rules to apply a dispensation to living accommodation.

Where a dispensation has been given by the Officer:

  • the employer need not report the particular expenses or benefits covered by it on form P11D and
  • the employee need not include them on his income tax returns and
  • they are not included in assessments or the PAYE coding of the employee.

No retrospection beyond the year of application

If the conditions for granting a dispensation are satisfied (EIM30055), the dispensation strictly takes effect from the date of the notice issued by HMRC, although it may be agreed that it can take effect from the beginning of the tax year to which the dispensation relates. A dispensation cannot apply with retrospective effect to an earlier year.

For example, if an application for a dispensation was submitted in August 2004, and the dispensation was granted in December 2004, it may be agreed that the dispensation can apply with retrospective effect from 6 April 2004, as this was the start of the year in which the application was submitted. On the other hand, if an application was submitted in February 2004 and granted in June 2004, it may be agreed that the dispensation can apply with retrospective effect from 6 April 2003, as the application was submitted in 2003/04.

Retrospection prior to the date of the notice is intended to assist the employer that already reimburses qualifying travel expenses and had a previous dispensation or submitted forms P11d. A dispensation should not take effect from a date that precedes the date of the notice if:

  • The employer did not pay qualifying expenses before that date. If the employer is seeking a dispensation in advance of putting in place a travel expenses regime, the earliest effective date for the dispensation will be the date of the notice.
  • The employer accepts that although they have previously made payments to employees, they did not have processes in place to ensure that they were reimbursements of qualifying expenses. The taxation consequences of this type of expenses regime would have to be considered carefully (notably the guidance at EIM05100 relating to round sum allowances).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)