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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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Exemption for amounts which would otherwise be deductible: Introduction

S289A ITEPA 2003

For periods prior to 6 April 2016 see eim30050.

From 6 April 2016 employers will no longer be able to apply to HMRC for a dispensation in relation to expenses or benefits that they pay, reimburse or provide to employees and which would previously have been fully matched by a deduction from the employee’s earnings. All existing dispensations will cease to be effective after 5 April 2016. See eim30215

Almost all expenses or benefits that might previously have been covered by a dispensation will from 6 April 2016 be within an exemption from tax and NICs, and will not need to be reported on form P11D. If employees would have been entitled to tax relief in full for an expense then employers will not need to deduct tax or NICs from that expense payment, and won’t need to report it to HMRC.

When paying or reimbursing qualifying expenses in full, employers do not need to apply to HMRC for agreement to do so, they need only satisfy themselves at the time of making the payment that the expense would be fully deductible.  This is a process that the employer can undertake in real time.

Expenses and benefits will not, however, be exempted if they are provided under a relevant salary sacrifice arrangement.  See eim30230

Employers who pay any non-allowable expenses or provide non-exempt benefits will still need to put those through the payroll and deduct tax and NICs, or put them on form P11D as they would now.

Benefits that are only partially exempted will need to be put through the payroll in full and employees will need to claim a deduction on the exempt part.