Qualifying expenses for employees
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From 6 April 2016 HMRC replaced dispensations (P11DX) by introducing an exemption from paying tax and National Insurance on qualifying expenses that are paid, reimbursed or provided to employees.
What are the qualifying expenses?
The most common of these include:
Systems you must have in place
From 6 April 2016 it is now a statutory requirement for employers to operate a system for checking employees’ expenses claims. The system has to check:
The extent and regularity of the checking process will depend on the size of the workforce and the nature of the expenses being reimbursed. As well as reviewing claim forms and receipts, items such as diaries, attendance records and work schedules should also be checked.
HMRC expect employers to have the appropriate systems in place and will want to ensure that employers are complying with their duties and responsibilities. If employers are found not to have the necessary checking systems in place then tax, NIC and penalties could be charged.
What are the qualifying expenses?
The most common of these include:
- Travel, including subsistence costs associated with business travel – You must retain all receipts to support these claims and the journeys must fit the definition of business travel and NOT commuting.
- Hire car costs – You must only reimburse the costs of hire cars and related fuel if the employee/ director has a receipt to support the claim.
- Telephones – You must only reimburse employees/ directors for the cost of business calls made on their own phone(s), where supported by itemised bills. This should not include any line rental, mobile phone contract or equipment costs. Of course if the contract is a business contract under the company’s name then this does not need reporting anyway.
- Business entertainment expenses – You can reimburse business entertaining expenses as long as the costs exclude entertaining of relatives, partners or members of the same organisation.
- Fees and subscriptions – You can reimburse fees and subscriptions paid to professional bodies if they are approved by HMRC. The full list of HMRC approved professional bodies can be found here.
Systems you must have in place
From 6 April 2016 it is now a statutory requirement for employers to operate a system for checking employees’ expenses claims. The system has to check:
- the employees are actually incurring expenses.
- the amount claimed is not excessive.
- a deduction would be allowable for those expenses.
The extent and regularity of the checking process will depend on the size of the workforce and the nature of the expenses being reimbursed. As well as reviewing claim forms and receipts, items such as diaries, attendance records and work schedules should also be checked.
HMRC expect employers to have the appropriate systems in place and will want to ensure that employers are complying with their duties and responsibilities. If employers are found not to have the necessary checking systems in place then tax, NIC and penalties could be charged.