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Chapter 2 Dispensations
Notice of nil liability
2.1
To avoid an employer sending details of routine expenses payments and benefits
that would clearly involve no extra tax liability the legislation provides for
dispensations. If the employer satisfies an officer of HMRC that all the expenses
and/or benefits they provide would be fully covered by an expenses allowance to be
claimed by the employee, the officer may give a dispensation. That is to say, the
officer may notify the employer that the special provisions will not apply to those
payments or benefits so long as the circumstances in which they are payable remain
exactly the same. For these items only the employer need not show these on forms
P11D or P9D for the affected employees.
Common items that can be included in a dispensation:
travel, including subsistence costs associated with business travel
f uel for company cars - the amount paid to the employee should not exceed the
Advisory Fuel Rates
hire car costs
phones
business entertainment expenses
credit cards used for business
fees and subscriptions.
2.2
There is a statutory tax exemption for Mileage Allowance Payments, which if paid
below a certain amount will not produce a liability to employees. Consequently such
payments cannot be included in a dispensation. Mileage Allowance Payments in
excess of the exempt amount are taxable (see Chapter 16).
Dispensations are also not given for round sum expense allowances. The officer of
HMRC will not give a dispensation if the effect would be to remove from the scope
of the special rules an employee who would otherwise be within its terms.
Other items which cannot be included in a dispensation:
living accomodation
removal expenses and benefits
company cars
vans
loans
trivial benefits
airline flight duty allowance (FDA).
2.3
Where a dispensation is given, Pay As You Earn (PAYE) does not apply to the
payments or benefits concerned. The employer need not show the particular
payments or benefits on the annual returns (forms P11D and P9D) they make to
HMRC (see Chapter 24), and the employee need not show them in their tax return.
2.4
The above lists of items that can or cannot be included in a dispensation are
not exhaustive. You can find more information on dispensation on the HMRC
website. Go to www.hmrc.gov.uk/paye/exb/schemes/dispensation.htm where you
will find an online or downloadable application form P11DX. You can obtain an
application form at any Enquiry Centre where you may also be able to access the
HMRC website.
2.5
Dispensations are reviewed from time to time. The officer can revoke a
dispensation previously given. If the officer does so, the special provisions will
apply to the payments or benefits concerned and the employer will need once again
to report these on forms P11D/P9D after the end of the tax year.
Section 65