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HMRC internal manual

Employment Income Manual

Exemption for amounts which would otherwise be deductible: Notice of approval

Where you are satisfied that the information supplied by an employer demonstrates that the bespoke rate they wish to pay is a reasonable estimate of the amounts that their employees are actually spending, an approval notice can be issued. This notice must state:

  • the rate agreed
  • the circumstances under which the rate can be paid
  • the date from which the rate can be paid
  • the date on which the approval will cease
  • the employees or groups of employees that it applies to.

The approval notice will also remind employers that they will need to contact HMRC in relation to:

  • changes in the agreed rate
  • changes in the circumstances under which the rate is paid
  • evidence from their checking system indicating that the agreed rate is not representative of the expenses employees are actually incurring, or
  • evidence from their checking system identifying a widespread or significant failure by employees to retain evidence of their spending.

A template letter for this purpose is available, but please ensure that the approval notice details the payments for which the notice is being given, the circumstances under which payments should be made, and the requirements of the checking process as precisely as possible.

Employers cannot start to use a bespoke rate until they have received a copy of an approval notice.

Approval notices should not include a clause allowing the employer to increase the amount of any scale rate by a measure of inflation. Where an employer considers within the period of an approval notice that the agreed rate is no longer sufficient to represent a reasonable estimate of their employee’s qualifying expenses, they will need to make a new application.