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HMRC internal manual

Employment Income Manual

The Schedule E expenses rule: incur and defray out of the emoluments: dispensations

If HMRC is satisfied that a payment made or a benefit provided to an employee would notgive rise to any additional tax payable a dispensation can be given, see EIM30050. Typically this will be because the amount of earningsrepresented by the payment or benefit would be matched by an equal deduction for anexpense under one of the deduction rules.

Where a dispensation has been granted for particular earnings no deduction is possible forthe equivalent expenses. Section 334(2) ITEPA 2003 states that where an expense has beenreimbursed or a payment made in respect of that expense then a deduction is only permittedto the extent that the payment or reimbursement is included in earnings. Where there is adispensation the payment or reimbursement is not included in earnings and so there can beno deduction for the equivalent expense.