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Author: JP / / Latest News

Employers Beware… Old ‘Flat Rate Allowance’ Dispensations and ‘Benchmark Rates’

If you pay employees a Flat Rate/Round Sum Allowance agreed in a Dispensation with HMRC prior to 5 April 2016 (say for overnight accommodation and/or food), firstly you should note that if it was agreed prior to 6 April 2011 then it became redundant on 6 April 2016 when dispensations were abolished.

If it was agreed after 6 April 2011 then it could continue but you should have contacted HMRC to have it converted to an Approval Notice (effectively a new style dispensation for these round sum allowances).

If you do not do this, if you are subjected to an HMRC compliance visit, they are likely to want to subject all the amounts paid to PAYE/NI.

As an alternative to agreeing a bespoke rate for meal allowances with HMRC, you can, without an Approval Notice pay the HMRC issued ‘Benchmark Rates’.

See www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30240 for details of these rates.

However, and this is the sting in the tail, when dispensations applied usually the agreed rate could be paid without any evidence of what the employees had actually spent, the only thing the employer had to show was that the payment was due in the first place (eg. the employee was away from home overnight if the payment was to cover overnight meals).

Now, whether you pay the ‘Benchmark Rates’ or agree a bespoke rate with HMRC, you must have a checking process in place to prove that the amounts you are paying are not excessive compared to the actual expenses being incurred by the employees.

See www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30270 and www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30275 for full details.

Basically, the employee will have to obtain/retain receipts so that you can randomly check them, the above links give an idea of what level of checking would be required by various sized businesses.

In our opinion this makes both Flat Rate/Round Sum bespoke payments and Benchmark Rates pointless… if the employees have got to obtain/retain receipts for expenditure, then why not just reimburse actual expenditure? At least that way they have to get the receipts otherwise they won’t receive a payment.

If they’re getting paid a Flat Rate Allowance, we doubt many will then keep the relevant receipts and then this puts the employer at risk.

An upper limit can be placed on the amount that you reimburse employees so that they don’t start eating at the Ritz!

If you are making any payments of this kind to your employees you need to take action immediately.

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