HMRC have recently announced that from 6 April 2017, in order to pay the overnight allowance free of tax and national insurance, operators are required to apply for an Approval Notice from HMRC. If operators wish to pay amounts in excess of these rates they will need to apply for a Bespoke Agreement.
When applying, the operator must be able to show the presence of a checking system, which they will use on a random basis to ensure that expenses claimed are actually being incurred.
The Approval Notice and Bespoke Allowance Agreement may be applied for online here. Note that both applications may be made on the same Bespoke Allowance Agreement application form.
The approval will last for up to five years.
Employers must have a system in place for checking that payments to employees are only made on occasions where the employee would be entitled to a deduction from earnings in respect of that payment and had incurred and paid an amount in respect of expenses on that occasion.
HMRC will accept evidence in the form of a sampling exercise based on the expenses incurred:
- By a random sample
- Of 10 per cent of all eligible employees
- Over a one-month period.
These checks should cross-reference driver work schedules and time sheets to demonstrate that drivers were away from base in the performance of their duties on the days that payments were made. A further check on driver receipts should be carried out to ensure that costs were incurred.
Further details of the checking model are available from HMRC document EIM30275 which is available here.
The documentary evidence needed to support the checking system may include the following.
- Receipts – e.g. for hotels or parking
- Drivers’ log sheets or tachograph records/data
- Drivers’ expense claims.
Operators may need to make further enquiries to be satisfied that a tax-free payment is justified.
Operators will need to retain evidence to show that they have undertaken checks in accordance with the checking system that they proposed when making their application fora bespoke agreement. This evidence may also be required when the employer is subject to an HMRC employer compliance review.
If meal allowances are also paid then it is advisable to obtain HMRC approval at the same time as the overnight allowance on the Bespoke Allowance Agreement application form.