Posted on 23 March 2016
As you may be aware, with effect from 6 April 2016, if you have previously agreed a P11D dispensation with HMRC it will no longer be valid. Instead, legislation has been introduced to exempt from tax non-taxable business related expenses that are paid or reimbursed by an employer.
Whilst this sounds like good news, as an employer you will no longer have to apply for Dispensation updates every few years, it potentially means that you will have lost the ‘safety net’ that was specifically related to your business.
In addition, from 6th April 2016 although employers will still be able to negotiate and agree bespoke round sum expense rates with HMRC, any bespoke arrangements in place before 5 April 2016, (e.g. round sum allowances in excess of HMRC benchmark rates) will only continue to be valid for 5 years from the date they were first agreed. Employers with arrangements of this type are also required to contact HMRC before 6 April 2016 to confirm the arrangements already in place. If an employer fails to contact HMRC the arrangement will lapse with immediate effect.
HMRC have recently confirmed that, going forward, in order to meet the new legislative requirements, they expect all employers to understand what their potential risks are, have relevant policies and processes in place to manage their risks, and regularly ‘test’ or review expense claims to verify that they are properly business related and within the terms of the legislation. Such processes will be a strong indication to HMRC that robust governance and controls are in place. Without these processes in place your risk of HMRC settlement in the event of an enquiry will be increased.
Smith Cooper’s Employment Tax team can help you to manage this process, and HMRC’s expectations, in a simple and effective way. Laura Parr and Mick Verney are both ex HMRC Employer Compliance Inspectors and also worked as specialists in the big 4 profession, and can help employers manage employer compliance issues and reduce the risks of HMEC settlement being sought.
If you would like further information, or to discuss what you can do to meet HMRC’s expectations, please contact Laura or Mick.