Since coming into effect on 17th April 2017, new business rules have done away with the fiasco of P11Ds for expenses claims. In their place, dispensations have been replaced with exemptions.
Previously, all expenses had to be put on a P11D form, and employees were obliged to pay tax and NIC on paid or reimbursed expenses payments unless they made an expense claim to HMRC. Employers could try to avoid this by requesting a dispensation, but HMRC were reluctant to grant dispensations to smaller businesses.
Now, certain businesses expenses are covered by the exemption system. Business travel, phone bills, business entertainment expenses, uniform and tools for work: these are examples of the sort of expenses that fall under the remit of expenses.
Essentially, anything that is for wholly exclusive and necessary use in the performance of an employee’s performance and duties is no longer subject to tax.
In order to qualify for an exemption employers must either be paying a flat rate to the employee paid as part of their earnings (as either a benchmark or bespoke rate approved by HMRC) or paying back the employee’s actual costs.
Of course, National Insurance and tax must be deducted and paid on all other expenses and benefits; however it’s good to keep in mind that there are many things on which they don’t have to be paid.
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