HMRC have introduced an exemption regime for employee expenses. If the necessary conditions are met, the expenses are tax exempt and non reportable on form P11D. If your company operates in Swanley, Bromley, Kent and London areas, Adiva Accountants in Swanley can provide guidance on these changes.
This factsheet covers below the operation and reporting of expenses and benefits. There is a new exemption regime for such expenses. As long as the necessary conditions are met, there is no need to report these items on P11Ds. To meet these conditions the business must be satisfied that the employee would be entitled to full tax relief on expenses reimbursed to the employee.
The new regime
In the past when an employee incurred expenses they were treated as earnings. Then the employer reported them on the annual form P11D. The employee was then allowed to make a claim for tax relief to the extent that the expenses were business expenses. Later dispensations were introduced as a way of simplifying the process. So, the employers could apply to HMRC to dispense with the need to report certain expenses on the P11D. This removed the need for the employees to make claims.
If the HMRC were satisfied that the employee would have been entitled to full tax relief on that payment or benefit, the dispensation was given. Many employers applied and used dispensations, but many smaller or unrepresented employers did not do so.
From 6 April 2016, all existing dispensations came to an end and businesses will no longer be able to apply for a dispensation. A new exemption has been introduced instead. This means that businesses will not have to pay tax and NIC on paid or reimbursed expenses payments, or put them on a P11D. The new exemption places the onus on employers to determine whether employee expenses are fully deductible for tax purposes.
The types of expenses
The main types of expenses to which the exemption applies are:
- travel and subsistence
- fees and subscriptions
- business entertainment
All other non-allowable expenses will still be reportable on a P11D and/or subject to PAYE (and possibly NIC). Same as before employees will be able to claim tax relief in respect of unreimbursed business expenses.
This new exemption will not apply to expenses or benefits provided under a relevant salary sacrifice. This includes any arrangement where an employee gives up the right to receive earnings in return for tax free expenses payments. Or where the level of their earnings depends on the amount of any expenses payment.
If your company operates in Swanley, Bromley, Kent and London areas, Adiva Accountants in Swanley can advise you on the changes to P11Ds. Please do not hesitate to contact us at Adiva Accountants in Swanley.