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A dispensation is a notice issued to an employer by Income Tax Division that relieves them from the requirement to deduct ITIP from business expenses payments and from reporting these expenses payments on form T9.
It indicates that the Income Tax Division is satisfied that there are sufficient controls in place, within the business to ensure that:
A dispensation can cover any type of expenses payment (apart from a round sum allowance). Payments typically covered by a dispensation include:
A dispensation cannot cover any round sum allowance paid. A round sum allowance is a set amount that is paid to cover an expense that may or may not be incurred: e.g. an employee may be paid £20 per month in case they use their own vehicle for business purposes. Where expenses are not reimbursed on a receipts basis and a round sum payment is made to an employee, there is the possibility that a profit could be made by the employee on expenses incurred. Any round sum payment made or any expenses repaid without the production of a receipt, should go through the payroll and be subject to tax and national insurance.
Some examples of these payments are:
When a dispensation is agreed it will clearly state which employees it will apply to and who will be excluded.
An employee or director who authorises their own expenses will be excluded from a dispensation and the employer will have to report all expenses payments on form T9.
To apply for a dispensation you should write to the Third Party Manager in the Income Tax Division setting out:
If your company has specific rules regarding the reimbursement of expenses it would be helpful to provide a copy with your dispensation request. The office would also ask that you supply a copy of an expenses claim form, so that it can be reviewed within this process and held on file.
Further information may be requested before a decision is given. It is important to note that a dispensation only continues to be effective as long as the circumstances remain unchanged or until it is withdrawn.