HM Revenue & Customs (HMRC) now provide the facility to file a dispensation application online in addition to sending the application by post.

If HMRC grant your business a dispensation, it removes the requirement to report those expenses and benefits to them at the end of the year on forms P11D or P9D. There is also no tax or National Insurance to pay on items covered by a dispensation. Granted dispensations last indefinitely but 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.

You can apply to HMRC for a dispensation to cover expenses or benefits for which your employee will get a full tax deduction. This includes many routine business expenses and benefits. To find out whether an individual item can or can’t be included in a dispensation, see the expenses and benefits A to Z.  If there is no reference to dispensations in the item’s A to Z entry, it means the item can’t be included in a dispensation.

The main expenses routinely covered by a dispensation are:

•           travel, including subsistence costs associated with business travel

•           fuel for company cars

•           hire car costs

•           telephones

•           business entertainment expenses

•           credit cards used for business

•           fees and subscriptions

You must have an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone, other than the employee claiming the expenses, to check that:

•           the amount claimed isn’t excessive

•           the claim doesn’t include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims - for example, because you are the sole director of your company and you have no other employees - you will only be able to obtain a dispensation if you:

•           ensure all expenses claims are supported by receipts for the expenditure

•           demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information. Alternatively, we can authorise the expenses claims for you.

Please contact us or review the HMRC dispensation guidance to find out more.