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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Exemption for amounts which would otherwise be deductible: Bespoke agreements

S289B ITEPA 2003

Employers wishing to pay or reimburse employees expenses at a rate other than that set out in the Income Tax (Approved Expenses) Regulations 2016 can apply to HMRC for approval of a bespoke rate.

An application must set out the rate that employer (payer) wishes to pay and demonstrate that the amount is a reasonable estimate of the amount of expenses actually incurred by employees, and that a deduction under Chapters 2 or 5 of Part 5 ITEPA would be allowed in respect of those amounts. This will normally be an amount established following a sampling exercise.

Sampling guidance

HMRC accept that it will be impractical for some employers to obtain evidence of expenditure incurred by every one of their mobile employees in order to establish an acceptable rate. Where that is the case, we will accept evidence in the form of a sampling exercise based on the expenses incurred

  • by a random sample
  • of 10% of their eligible employees, or so many employees as is necessary for the sample to attain a degree of statistical certainty of 95% +/-3%
  • for a period of one month.

Employers will have to be able to satisfy HMRC that their sample really is a random one - for example, every 10th name from an alphabetical list of the employees concerned. HMRC will generally seek to accept the evidence produced by such a random sampling exercise as the basis for agreeing the amount of the employer’s scale rate subsistence payment.

Where it is not possible for employees to obtain receipts for all expenses incurred during the sampling period, the employer should consider seeking contemporaneous notes of the expense and consider whether the amounts detailed in such notes are reasonable and representative prior to including them in their sample.  Submission of menu cards or other price lists will not be considered acceptable for evidence purposes.

Checking system

Employers must also have a checking system in place for ensuring that payments or reimbursements are only made on occasions where the employee would be entitled to a deduction from their earnings, has incurred and paid an amount in respect of expenses, and has retained evidence of their expenditure. See eim30270.

When considering applications you will need to be satisfied that the proposed scale rate payments are set at a level which broadly represents the amount that employees are actually spending on allowable subsistence expenses. Employers should therefore be prepared to provide evidence of the amount that their employees are spending. This evidence should ideally be in the form of receipts but other evidence, such as an employee’s contemporaneous record of expenses incurred, should also be considered.

Where you are satisfied that the amount applied for is a reasonable estimate of the costs actually incurred by employees you can issue an approval notice setting out the rate at which expenses may be paid or reimbursed, the date from which the approval is granted and the type of expenses covered. The date from which approval is granted must not be earlier than the date of the approval notice. Approval notices must not be back dated to the start of a tax year or any other time.  This is a significant change from previous dispensations notices which could be given retrospectively to the start of the tax year for which they were to apply. The approval notice must also give the date on which the approval ceases to exist. See eim30260.

Approval notices will cease to have effect from a date no later than the end of a period of 5 years beginning with the date on which the approval takes effect

Working Rule Agreements – The published scale rates do not apply to employees covered by Working Rule Agreements, for which separate specific rates are already set for particular occupations. See eim71300