PAYE Exemptions & Dispensations

08 January 2016

Under the current system, Employers have been able to apply to HMRC for a dispensation to be granted in respect of certain expenditure, for example business entertainment, travel and subsistence. Once such a dispensation is in place, the expenses no longer have to be declared on the annual return of expenses payments and benefits (form P11D). This drastically reduces the Employer’s time in collecting the information each year to complete the form. Unfortunately dispensations are being abolished with effect from 6 April 2016 and any dispensations in place at that time will no longer apply.

The new system introduces a statutory exemption for qualifying business expenses and benefits that are matched by a deduction which would otherwise be available to the employee. However, the Employer will need to have a system in place to check that only the actual expense incurred is reimbursed and that the employee would be entitled to a deduction as a business expense.  This system will be monitored by HMRC.

The new exemption can cover flat-rate payments provided these have been agreed in advance with HMRC. Any employers paying such expenses for hotel accommodation, travel and subsistence etc., should take steps to agree the flat rate paid and thus remove the necessity to report it on future P11Ds.

There is no change for non-allowable expenses – they should still be reported on the P11D and will be subject to tax and national insurance.

Should you require any further information please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Stuart Miles at

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