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Umbrella dispensations have now been centralised and are being scrutinised thoroughly – it is not enough to simply apply for a dispensation – the application must be accompanied by a whole raft of additional information – for my recent article on Shout99 click here    —  contact me for further detail.

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There is nothing mysterious about a dispensation – it is not something for the privileged few – HMRC are in the business of granting dispensations and the more HMRC staff are trimmed the more important it is that dispensations are granted wherever possible.
The following is the text of my article that was published on Shout99 in January 2007. It was in response to whether a dispensation could be construed as HMRC granting “approval” to an employer……………..
Dispensations and “HMRC approved”
One dictionary defines ‘dispensation’ as ‘special permission to do something that is not usually allowed’ – in the case of a HMRC and expenses a dispensation is special permission not to do something that is usually a requirement. The official HMRC form on which to apply for a dispensation is a form P11DX and is headed ‘How to cut down on your paperwork: dispensations’. A dispensation dispenses with the paperwork – it is a notice of nil liability and is granted only where there is a matching income tax deduction.
Where employers make expense payments to employees they must report the detail of those expenses to HMRC. In turn the employees must declare the receipt of those expenses on their self assessment returns and, if those expenses are allowable for tax purposes, the employees will also claim the same amount as an income tax deduction (and be prepared to justify that expense if subject to an enquiry.
On the assumption that the expense is allowable the end result is that there is no tax effect but, particularly in the case of a large employer, a mountain of paperwork.
So how can all parties ‘dispense’ with at least some of the paperwork?
The employer applies for special permission and provided HMRC is satisfied that the audit system between employer and employee is robust and that there is no loss to the Exchequer, then a dispensation will probably be granted. The employer will no longer be required to report details of the expense payments to HMRC and the employee will no longer have to ensure that he claims a similar amount on his self assessment return.
It may be that only certain expense payments are covered but even so a dispensation is a common sense, time saving exercise. It does not diminish the need for the employee to justify the expense claim to the employer and moreover the employer might even have to tighten up existing internal audit requirements in order to obtain the dispensation.
I’ll leave it to you to decide whether, at this point, a dispensation qualifies as ‘HMRC approved’, however, let’s take this a stage further.
Is it possible to be entitled to a tax free expense payment without receipts? Yes is the answer – but under certain circumstances. NOTE – – THIS  HAS NOW CHANGED – HMRC HAVE MOVED THE GOALPOSTS  – click here for the audit requirement in respect of scale charges – including benchmark scale rates….. To quote from one of the HMRC manuals – ‘Payments that are calculated in accordance with a scale intended to do no more than reimburse the expenses incurred by employees can be regarded as equivalent to reimbursement.’ This is not a golden key to unlimited, unvouched expenses although some may regard it as such. These ‘reimbursements’ are still subject to employer audit requirements.
The most common example that we see is on the lines of a fixed meal allowance with no need to supply receipts – so let’s look at that in more detail.
The rules governing expenses in employment are very restrictive. There are the various limitations of wholly, exclusively and necessarily in the performance of the duties. Case law adds that we eat in order to live not in order to work but there are circumstances where the duties of the employment cause the employee to spend more on food than would otherwise have been the case.
If the tests are passed then the extra amount spent is allowable but in practice this is impossible to apply. How can anyone determine that extra amount? In practice therefore HMRC will allow the whole of the expense but only where more has been spent than would otherwise have been the case.
Practical effects
What are the practical effects of a dispensation in respect of a fixed allowance?
My practical experience as a claimant is limited to my service with HMRC. Casting my mind back a few months if I was away from my normal workplace for more than five hours then I was entitled to £4.25 meal allowance. Although it was not necessary for me to supply a receipt I still had to comply with the requirements of the law. There has to be money expended and it has to exceed what would otherwise have been spent. Any civil servant claiming a meal allowance has to sign a statement that they were where they said they were, that more had been spent than would otherwise have been the case with the statement including a declaration that false claims could result in dismissal.
If a firm negotiates scale rates with HMRC then by definition HMRC must have agreed the amount of the scale rate but whether that justifies ‘HMRC approved’ is a matter of debate – perhaps ‘HMRC agreed’ would be more appropriate.
It is not the case that a dispensation or agreed scale rates are the golden key to tax free expenses. A dispensation dispenses with paperwork. Robust audit trails must be in place. Say a person is away all day – there may be agreed rates for three meals but if that person travels first class rail both ways and is treated to lunch there is the possibility that nothing is spent. HMRC would expect that where e.g. first class travel is involved the employer would question a claim to meal allowance.
With scale rates a problem arises where one HMRC office agrees one rate with one employer and another office agrees a different higher rate with another employer. It is human nature that the employer with the higher scale rate will try, perhaps through website advertising, to use this as a tool. This is a problem that HMRC must address – yet another ‘unlevel’ playing field.
A dispensation is between the employer and HMRC. It can be withdrawn at any time. If the employer is found to be lax in the operation of the dispensation then it is employer who would be held responsible. If it is the employee who is making false claims then HMRC would expect the employer to take action e.g. the threat of dismissal that hangs over every civil servant. Being honest, however, I cannot see the threat of dismissal being an option considered by every employer particularly Umbrellas.
Shout99 article from January 2007