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Dispensations

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One of the problems faced by employers who reimburse expenses is the mountain of paperwork. This is particularly annoying where the expense payments are obviously allowable for tax purposes.

It also creates work for HMRC so where expenses are allowable for tax purposes, it makes sense for HMRC and employers to get together to dispense with at least part of the paperwork. The granting of a dispensation is a common-sense, time saving exercise. It does not confer any special advantage to one employer over another and neither is it a seal of approval by HMRC.

Without a dispensation the employer has to report details of expense payment to both HMRC and the employee. HMRC processes the information and the employee has to declare the expense and the reimbursement on their tax return. HMRC then has to compare the employees return with the employers return and investigate discrepancies. Where the expense reimbursements and the expenses claim cancel out each other this is a complete waste of time.

So that in a nutshell is a dispensation - it dispenses with form filling.

So why do some employers advertise their dispensation as conveying some form of advantage?

It is sometimes difficult to obtain a receipt for every item of expenditure - for example drinks and meals. Where that is the case HMRC may agree a modest deduction without receipts - this is commonly known as a scale charge. Unfortunately some HMRC offices seem to have taken a more relaxed view by granting allowances that not only seem generous but also include items for which a receipt is readily available and should not really be subject to a scale charge - for example hotel expenses.

However, from July 2008 it seemed that HMRC were beginning to take more of a hard line approach. In one particular case they refused a request for a scale charge, adding the explanation that such a scale charge was available for modest amounts of expenditure only and where it is difficult to obtain a receipt. It seems that the days of the scale charge for hotel bills is coming to an end and the recent consultation document enforces that view.

Scale charges are very useful but, even though agreed by HMRC, they are not an entitlement. For example, say a meal allowance scale charge is set at £8 per lunch. First of all the travel on that day must be allowable - for example travel to a temporary workplace - and secondly a meal has to be purchased. We eat in order to live not in order to work but if a person is working away at a temporary workplace and as a result spends more on food than would otherwise have been the case then that extra expense is allowable.

It is impossible to determine the amount of extra expense so where it can be demonstrated that extra has been spent HMRC will grant the full amount of the cost. If a scale charge is agreed then production of receipts is not a requirement - indeed the fact that a scale charge has been agreed should mean that we are talking about expenditure where it is often difficult to obtain a receipt - but there still has to be an audit trail. There must be some form of declaration by the employee that the journey took place, that it qualified and that extra had been spent and these needs to be audited by the employer. What is not the case is that the allowance is simply based on time spent at a temporary workplace. Bringing food from home will not satisfy the requirement as no "extra" expense has been incurred.

To conclude a dispensation is a common-sense time saving exercise. It is not a golden key to a wealth of allowable expenses. The problem is not the dispensation itself, as that simply dispenses with elements of paperwork, but the differing rates of scale charges and this seems to be something that HMRC are now addressing.

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