As mentioned in our Benefits in Kind March 2016 newsletter The Finance Act 2015 has revoked all dispensations from 6 April 2016 and has instead introduced an exemption for deductible expenses. However as HM Revenue & Customs can raise enquiries up to four years after the end of the tax year employers will need to keep evidence of their policies and procedures to be able to show that they have complied with the terms of the dispensation.
If an employer has a dispensation which was agreed within the last five years and which includes bespoke scale rates then the dispensation should be renewed before 6 April 2016 to enable them to continue to use the bespoke rates. These rates will then continue to apply until the fifth anniversary of their agreement. If the rates are not re-approved before 6 April 2016 then they will no longer be valid, the amounts will fall outside the new rules and will therefore be subject to tax and NIC.
For the new exemption to apply the legislation requires that employers must have a system in place to ensure that payments or reimbursements are only made where an employee would be entitled to a deduction from their earnings and has incurred and paid an amount in respect of expenses. Employers should therefore review their existing expenses and benefit policies to ensure that they comply with the new rules.
For further information, please contact us.