A dispensation is a notice from HMRC that removes the requirement for the employer to report certain expenses and benefits at the end of the tax year on forms P11D or P9D. There is also no need to pay any tax or National Insurance contributions on items covered by a dispensation.
Once granted, dispensations last indefinitely. However, HMRC can review them to make sure that the conditions under which they were issued still apply.
A dispensation includes routine business expenses and benefits. There is no defined list, though the main expenses routinely covered by a dispensation are:
- travel, including subsistence costs associated with business travel
- fuel for company cars
- hire car costs
- business entertainment expenses
- credit cards used for business
- fees and subscriptions
For a company to apply for a dispensation, there must be some basic systems in place. At a minimum this means someone, other than the employee who is claiming the expenses, has to check that the:
- amount claimed isn’t excessive
- the claim doesn’t include disallowable items
If it is not possible for you to operate an independent system for checking and authorising expenses claims – for example, because you are the sole director of your company and you have no other employees – you will only be able to obtain a dispensation if you:
- ensure all expenses claims are supported by receipts for the expenditure
- demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information
Dispensations can be applied for either in writing or online