From April this year, new rules will apply with regard to the reporting and taxation of expenses relating to an employee.
The current rules
The rules in place up to and including 5 April 2016 work like this:
- the employee incurs an expense – say, the cost of buying a train ticket – in carrying out his or her duties;
- the employer reimburses the employee for the cost of the train ticket;
- the employer records the payment to the employee on the employee’s form P11D;
- the employee is taxed on the payment recorded on the form P11D; and
- the employee claims a deduction for the original expense, cancelling out the tax on the payment by the employer.
Steps 3-5 above can be avoided if the employer is granted a dispensation by HMRC and most employers go down this route, making life easier for everyone (including accountants!).
The new rules
From 6 April 2016, the dispensation will be replaced with a statutory exemption. This means an employer will not be required to report, and the employee will not be required to pay tax on, any payments made in respect of tax-allowable expenses.
An employer may choose to pay a scale rate rather than reimburse the actual cost incurred. HMRC have published scale rates for the payment of a meal allowance where the employee makes a qualifying journey:
- Minimum journey time of 5 hours – maximum allowance of £5
- Minimum journey time of 10 hours – maximum allowance of £10
- Minimum journey time of 15 hours – maximum allowance of £25
In the case of the £5 and |£10 payments above, an additional £10 may be paid where the journey lasts beyond 8pm.
An employer wishing to pay a scale rate not in accordance with HMRC’s published rates may apply to HMRC for advance approval.
What this means for employers
Employers will need to make sure that they keep adequate records to show that all payments made to employees meet the conditions for exemption.
Where a scale rate is to be paid, the employer should check that this is in accordance with HMRC’s approved rates. If it is not, the employer should consider applying to HMRC for approval.
All employers who pay a scale rate will need to have a checking system in place and a key requirement is that someone other than the employee should be responsible for ensuring that the allowance meets the conditions. This could be an issue for one-man-band companies who may need to call on their accountant for help.
What it means for employees
If the employer has a dispensation then it is likely that this will have little impact on the employee. An exception may be where the employer chooses to pay a scale rate which leaves the employee out of pocket; i.e. where the employee’s expense is greater than the amount received from the employer. In such a case, the employee may be able to claim tax relief for the difference.
If the employer does not have a dispensation, and so currently all payments are recorded on the employee’s form P11D, then life should get a lot easier.
If you would like some assistance or have any questions on the above or any other areas of accounting or tax, please contact us at email@example.com
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