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HMRC issued a July 2011 statement on payday relief models, setting set out the department's view that the granting of tax and National Insurance (NI) ‘relief’ by an employer each payday is not compliant with tax and Social Security legislation.
A new Revenue announcement focuses on the use of dispensations, particularly in the context of payday tax relief models and other arrangements in which expenses are not reimbursed but tax relief is claimed to be administered each payday by the employer to reflect expenses incurred by the employee.
The taxman confirms that dispensation can be granted only where ‘payments of a particular character are made to or for any employees or benefits or facilities of a particular kind are provided for any employees’ (ITEPA 2003, s 65(1)).
To obtain relief in respect of expenses not within a dispensation, an employee needs to make a claim by letter, form P87, or via a self-assessment tax return.
The fact HMRC have granted a dispensation to the employer does not negate the need for an employee to make a claim where the employer has not made a payment of expenses.
The Revenue may revoke a dispensation where officials believe additional tax is payable in respect of payments or benefits.
Alternatively, the taxman may collect additional tax and NI without disturbing the dispensation because the administration of tax relief in this way is not covered by the dispensation and NI relief is not available unless separate and distinct payments of expenses have been made.
