A dispensation is a notice from HMRC that means you no longer need to report expenses and benefits to them at the end of the year. With Dispensation there is no need to pay either tax or NI on the items covered.
- Who benefits from dispensation?
- Employers whose workforce earns £8,500 a year or more
- Each director earning at a rate of less than £8,500 a year
- Those that would appreciate less hassle form HMRC
- What can I claim?
- Travel, including subsistence costs associated with business travel
- Fuel for company cars
- Hire car costs
- Business entertainment expenses
- Credit cards used for business
- Fees and subscriptions
- How does it work?
- DNS collect information on relevant business expenses
- DNS apply to HMRC on your behalf
- HMRC respond with the dispensation notice
- Your expenses are covered indefinitely
FAQ DISPENSATION APPLICATIONWhat is dispensation?
Every company must submit a P11D form for the period 6th April to 5th April each year to HMRC to record expenses and benefits, the latter of which is liable to tax and NI. If dispensation is in place, however, you are not obliged to report on a form P11D for reimbursement of your expenses. However, for dispensation to be an effective tool, you should make a rule to never pay for private benefits through your business because if you do you will have to fill in a P11D.
How long are dispensation notices valid?
Dispensation notices are valid indefinitely once granted. However, HMRC reviews them regularly (usually at intervals of five years or less) to make sure that the conditions under which they were issued still apply. To find out more go to the HMRC website
Do I need to keep any receipts if I have dispensation?
Expenses can be claimed without receipts providing they are genuine business expenses incurred while going about your business. If, for example, you travel by tube and were unable to keep the ticket or obtain a receipt. Providing you can prove should the inspector want you to that you went on a journey solely for the purposes of your work, then that journey would be a legitimate expense. You should, however attempt to minimize any claims made without receipts or other evidence to show that you have actually incurred the expense.
Are there any things you can claim without receipts?
You are not required to keep food receipts if you are claiming the expenses within the bands defined by government. The current bands are £5 for breakfast if you leave home for work before 6 am, but if you usually leave for work before 6 am then you cannot claim. A one meal rate (5 hr rate) up to £5 can be claimed if you are away from your home/normal workplace and have incurred the cost of a meal. A two meal rate (10 hr rate) up to £10 can be claimed if you are away from hour home/normal place of work and have incurred the cost of a meal, and a late evening meal rate (irregular late finishers only) up to £15 may be claimed if you are working later than usual and finish work after 8 pm and have bought a meal which usually you would have eaten at home. Dispensation without reporting also covers business entertainment expenses. These are classified as lunches for customers and potential customers where business is discussed and reasonable entertaining at exhibitions.
How easy it is to get dispensation?
Any business with employees can apply to HMRC for a dispensation in order to avoid reporting expenses paid to employees on form P11D. Dispensations awarded by HMRC are intended to minimize the need for administration and paperwork and are not a means to obtain tax relief or advantage on expenses or claims which would not otherwise be allowable. For this reason HMRC avoid giving dispensation notices to one-man-band companies.
Do I still need to have my expense records checked independently if I have a dispensation notice?
You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than a director/employee checking the claims, checking that the amount claimed isn’t excessive, and that it doesn’t include disallowable items. DNS will do this for you if you subscribe to our Dispensation Service. If you do not have your expense records checked by an independent body you should ensure that your records are up-to-date and precise. You must not report as an expense anything that might be seen as a benefit (which is liable to Tax and NI), but so long as your record-keeping is sound and your claims are genuine you should be okay.
If I do not comply with all the conditions, what will happen to the dispensation notice?
The dispensation notice will be withdrawn if you do not comply with the conditions that confine it. These conditions include paying HMRC on time and notifying them of any changes, and include scrupulous reporting, for example petrol that was used not on a journey from work to a client, but from home to work. This is not allowed.
Does the government give dispensation notices to one-man-bands?
HMRC avoids awarding dispensation notices to one man-band companies. They will, however, consider awarding dispensation to one-man-band companies provided that the expenses are independently vouched for; that genuine business expenses such as business travel and subsistence are distinguishable from "benefits", and that the inspector is satisfied that tax is not at risk.