Every business would normally be required to complete a P11D which is breakdown of all the expenses for each employee in relation to expenses they have claimed during the tax year. A dispensation is basically a way of reducing paperwork as the granting of a dispensation relieves the employer (umbrella) from having to complete P11D's, saving time for both the company and the HMRC. A dispensation is an agreement between the HMRC and a company (not just umbrella companies).
The dispensation will allow the company to offset an agreed amount of expenses without having to provide details of them to the HMRC. The dispensation does not allow the umbrella company to allow expenses when no real expenditure has taken place, nor does it mean that the individual should not keep receipts for all business expenditure incurred 'wholly and exclusively' in the performance of your duties. Put simply, receipts are your 'insurance' if the HMRC investigate you, you will need to be able to provide proof of these expenses.
Note: A dispensation is not an indication of the expenses you are entitled to claim. If you want to claim a business expense you can as long as it was "wholly and exclusively incurred in the performance of the contract." If you spend £5 on lunch then you can only claim £5 back - NOT the amount an umbrella company will say you can claim.