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HMRC internal manual

Employment Income Manual

Exemption for amounts which would otherwise be deductible: bespoke agreements - revocation of approval

S289C ITEPA 2003

An approval notice continues in force until either the expiry of its term, a maximum of 5 years, or it is revoked. An Officer of HMRC has the right to revoke an approval notice given under s289B ITEPA 2003 by giving a further notice (a ‘revocation notice’).

A revocation notice may revoke approval from either a day on which the approval took effect, or a later date specified in the notice.

HMRC may make the revocation retrospectively to the date the approval notice was granted or wrongly applied where it believes that the employer (or the person making the expenses payments) has been negligent in operating an approval notice, has misrepresented the facts when applying for an approval notice, it is apparent that the rate paid under the approval notice is not representative of the expenses employees are actually incurring, or if there is evidence of a widespread or significant failure by employees to retain evidence of their spending.

Retrospective revocation may also be necessary if an approval notice 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 were paid or reimbursed subsequently changed. If after those changes an approval notice would not have been granted by HMRC, but the employer continued to pay or reimburse expenses under the terms of the original approval notice, 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 were paid or reimbursed under an approval notice when they should have been subject to tax and NICs, HMRC will pursue retrospectively the tax and NICs liabilities due when the expenses were originally paid or reimbursed.

A notice of revocation should clearly state the period of the approval notice that has been revoked. The employer will still be afforded the protection of S289B ITEPA 2003 for earlier periods. If, for example, an approval notice was granted on 6 April 2016 and in 2019 you decide to retrospectively revoke it with effect from 6 April 2018, the approval notice would still apply for the period from 6 April 2016 to 5 April 2018 and you cannot pursue any outstanding tax and NIC’s liabilities for that period under S289C 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 approval notice and could not be covered by the notice, such as the reimbursement of private travel or the payment of round sum allowances (see EIM05100). 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 approval notice. You need to be satisfied that the notice only includes expenses that qualify to be covered by an approval notice and that the failure to account for Tax and NIC’s on payments falling outside the notice can be separately identified and addressed.