Out with the old
When employees expenses are re-imbursed, even when they are business expenses they should be disclosed on the annual P11D. This didn’t apply for mileage at the 45p (or 25p rate). To avoid this paperwork companies could apply for a dispensation from HMRC.
Larger employers could also include flat rate expenses in their dispensation but for small companies this was difficult to get.
In with the new
From 6 April 2016 this has changed. Previous dispensations are no longer valid and now if the expenses is a genuine business expense the item no longer has to be included on the P11D.
What else is new?
- Flat rate expenses are available to all businesses large and small;
- Businesses can now include benefits in their monthly payroll so reducing the need for a P11D on items such as company cars and medical benefit;
- There are also new statutory exemptions for trivial benefits in kind.
There are conditions…
Although tax allowable expenses no longer need to be reported to HMRC and neither tax nor NIC will need to be deducted but the expenses have to be calculated and reimbursed in an approved way.
There are two avenues down the new “approved way”.
Approved Method One:
The employed or third party must operate a system to check that the “expense” claimed was incurred and is both allowable and deductible. The obvious was for a contractor company to do this is to retain receipts.
Approved Method Two:
Expenses can be claimed on a flat rate basis, free of tax and NICs – where the relevant qualifying conditions are met. Avenue two, may be most convenient if the type of expense is incurred on a regular basis. Under this flat rate method, you can claim:
- £5 when the duration of qualifying travel in that day is five hours or more
- £10 when the duration of travel in that day is for 10 hours or more
- £15 late meal allowance for irregular late finishes; i.e. after 8pm
What evidence do you need to keep?
Attendance records, diaries, receipts, and random checks should be made by the employer or your accountant/bookkeeper throughout the year.
This should make life easier for employers but remember to keep the evidence, just in case HMRC come calling!
If you need any help in understanding the new rules on expenses then please call Clearways Accountants on 01737 244298 for your free consultation.