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HMRC internal manual

Employment Income Manual

Dispensations: revoking a dispensation

Section 65(6) 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  For tax years 2016-17 onwards dispensations have been replaced by an exemption for amounts which would otherwise be deductible.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.

A dispensation continues in force until it is revoked unless a term is put to it when it is first given. The Officer of HMRC has the right to revoke it any time. Revocation should be recorded on the copy of the original dispensation.

Where a dispensation has been revoked and HMRC believes that the employer (or the person making expenses payments or providing benefits) has been negligent in operating a dispensation, or has misrepresented the facts, when applying for a dispensation, HMRC may make the revocation retrospectively to the date the dispensation was granted or wrongly applied.

Retrospective revocation may be necessary as well if a dispensation was applied for and granted by HMRC based on facts that were presented and accepted at the time, but the basis on which the expenses payments and benefits were provided subsequently changed. If after those changes a dispensation would not have been granted by HMRC, but the employer continued to provide expenses and benefits under the terms of the original dispensation, without informing HMRC of the change in circumstances, HMRC may decide that retrospective revocation is due to the date when the change occurred.

Where it is apparent that negligence or misrepresentation has taken place and expenses and benefits were provided under a dispensation when they should have been subject to tax and NICs, HMRC will pursues retrospectively the tax and NICs liabilities due when the expenses payments and benefits were originally provided.

Please ensure that you clearly state the period of the dispensation that you have revoked. The employer will still be afforded the protection of S65(5) ITEPA 2003 for earlier periods. If, for example, a dispensation was granted on 6 April 2009 and in 2014 you decide to retrospectively revoke it with effect from 6 April 2010, the dispensation would still apply for the period from 6 April 2009-5 April 2010 and you can not pursue any outstanding tax and NIC’s liabilities for that period under S65 ITEPA 2003. It is important to remember that statutory assessing time limits will also apply.

You may discover that an employer has made payments that were not detailed in the original dispensation agreement and could not be covered by a dispensation, such as the reimbursement of private travel or the payment of round sum allowances. If you are satisfied that in all other respects the employer is still acting in accordance with the original agreement, you should consider pursuing the tax and NICs liabilities due on those payments without revoking the dispensation. You need to be satisfied that the dispensation only includes expenses and benefits that qualify to be covered by a dispensation and that the failure to account for Tax and NIC’s on payments falling outside the dispensation can be separately identified and addressed.

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