Business expenses exemption – HMRC guidance

Business expenses exemption – HMRC guidance

HMRC have published updates to the Employment Income Manual giving guidance on the forthcoming business expenses exemption.

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HMRC have published updates to the Employment Income Manual giving guidance on the operation of the new business expenses exemption, which takes effect from 6 April 2016.  Of particular note are the details on the ‘checking systems’ which employers will need to put in place to ensure that payments or benefits properly fall within the exemption.  Any employers using industry-specific scale rates will also be interested in the confirmation that they will need HMRC approval to continue to use these from 6 April.

 

Checking procedures

Employers will be required to have a system in place to check whether “all payments made or benefits provided under the terms of the exemption are properly within its scope”.  The guidance does not suggest a ‘one-size-fits-all’ approach but instead states that the form and regularity of checks will be dependent upon the following factors (inter alia):      

  • Size & complexity of workforce;
  • Uncertainty over employees’ eligibility for an exempt scale rate payment; and
  • Unpredictable or non-standard working patterns.
The guidance also includes models covering large employers with greater than / fewer than 1,000 travelling employees, small employers with fewer than 100 travelling employees, and “one man companies”.  Use of these models is not mandatory, but where one of these is adopted, HMRC state that they “will accept that the requirements of the exemption are met”.
 
Checking will apply where any scale rates (including bespoke or industry-specific rates) are used and will involve employers reviewing “the receipts retained and claims made by a random sample of staff” who must not be informed in advance that they will be the subject of a check.  Employees being paid a scale rate will, therefore, need to retain receipts as evidence that they have incurred qualifying expenses in case they are required as part of a random check.  Employers wanting to use scale rates post 5 April 2016 should, therefore, consider now what policies and processes need to be put in place to ensure that appropriate checks are carried out and that employees are aware of what records they need to keep.
 
Industry-specific scale rates
There had previously been some uncertainty as to whether industry-specific scale rates (for example those covering lorry drivers or aircrew) would be covered by the new system and checking processes.  The updated HMRC guidance, however, states that employers wishing to continue to use industry-specific rates will need to obtain HMRC approval, and that checking processes will need to be put in place.  Where relevant, employers should now, therefore, make an application to ensure that they can continue to use the rates from April.
 
Other points
Other areas covered by the guidance include the use of day scale rates and bespoke rates.
 
The new guidance can be accessed here.It is currently showing as being in ‘beta’ (non-final) format, but HMRC have confirmed that there will be no substantial changes to the content before it is fully incorporated into the main body of the Employment Income Manual.
 

For further information contact :

Mike Lavan

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