Tax Update (April 2009)

Make life easy for yourself with a dispensation

One of the best ways to make life easier for you and your business is to make sure you have a current dispensation for expenses and benefits in place. Some businesses may already have a dispensation but considering the current economic climate, it is so important to make sure it is up to date.

Many businesses rely on the belief that reimbursed business expenses are non taxable but do not obtain a dispensation. The proper process in these circumstances is to show all such expenses on Form P11D particularly in sections N. This can be a long laborious task. Failure to show these expenses on the P11D where you do not have a dispensation means that your P11D's have been submitted with errors which may result in HM Revenue & Customs issuing penalties of up to £3,000 for each incorrect return.

Whilst applying for a dispensation is fairly simple employers need to fully understand their responsibilities to ensure they do have policies and procedures in place to obtain and retain the dispensation. This will be HMRC's way of checking that the expenses covered by the dispensation are being treated correctly for tax purposes. A key element often missed by business owners is that if your expenses and benefits policies change then you should obtain an up to date dispensation for that change and not assume that you are covered by the original dispensation.

If you have existing policies and procedures in place you should review them against any existing dispensation to ensure they are in line with each other. Any re-alignment or revisions should form part of a new dispensation application. If you do not have policies or procedures in place you should set these up prior to making an application. The procedures should as a bare minimum ensure that there is independent checking of expense claims, that the amount is not excessive and that the claim does not include disallowable items.

Large numbers of small businesses are operating without a dispensation whilst paying expenses and benefits and not reporting the payments. This puts your business at risk of not only costly penalties but also costs of dealing with HMRC to correct any issues.

Mentor Services can help you in obtaining a dispensation and establishing the required policies and procedures to make life that much easier.