P11D dispensations have been dispensed with

Last year saw an important change to the way tax-deductible business expenses, which are paid to employees, are dealt with.

Until the beginning of the 2016-17 tax year, employers who did not have a dispensation from HM Revenue & Customs (HMRC) were required to report benefits and expenses paid to employees.

Now, these dispensations have been abolished and such expenses are no longer reportable to the revenue.

The move means that businesses that did not have a dispensation in place will no longer have to deal with the considerable administrative burden of completing P11D. However, the quid pro quo for the change is that employers are now required by law to have a system in place for validating expense claims.

Additionally, the new exemption does not apply in circumstances where a reimbursement is in conjunction with a salary sacrifice scheme.

The same raft of changes have also impacted on the procedures for trivial benefits in kind. The changes mean that any benefit that meets the following criteria set out by HM Revenue & Customs is exempt from income tax and national insurance:

  • The cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person);
  • The benefit is not cash or a cash voucher;
  • The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements); and
  • The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).

The rules differ slightly for office holders of the company, family members and members of the household. In these cases the exemption is capped at £300 in total for the tax year.