PAYE Dispensation Agreements – can save you time and money

It is that time of year again when forms P11D have to be filed, disclosing benefits in kind provided to directors and employees earning over £8,500. The filing deadline is 6th July 2012 for the 2011/2012 tax year.

The forms disclose information concerning taxable benefits, with the common benefits being company cars and private medical insurance, but they also have to disclose the re-imbursement of certain expenses paid to employees. If these expenses are for business purposes the employee can file a Section 336 claim with HMRC so that they are not then taxed on these expenses.

The problem arises with HMRC’s processing of Section 336 claims. HMRC tend to send the P11Ds to one department and the Section 336 claims to a different department. As a result we are constantly finding errors in the PAYE coding notices which are issued after the P11D forms have been processed. These errors can often result in employees paying too much tax which can come as a shock and can take time for them to sort with HMRC.

To help deal with this issue the business can complete a ‘Dispensation’ form which is filed with HMRC. On approval of the application the business no longer have to declare certain expenses on forms P11D. The common items to claim a dispensation for are travel and subsistence expenses and business subscriptions. A dispensation can only be made in respect of items which do not give rise to a taxable benefit for employees.

We have found that some businesses were filing a number of P11Ds each year but none were required when a dispensation was put in place. This saved the clients not only the time in compiling the data but also professional fees. It can also stop employees from paying additional tax incorrectly.

For more help with P11d forms or dispensation applications please contact your local office.

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