If you are an employer, you may need to apply for a dispensation.
Why?
Because expenses reimbursed from an employer to employees - including directors - should be included as income on a personal tax return, with a corresponding claim of expenses for exactly the same amount. This amounts to a lot of work for the taxpayer which makes absolutely no difference to the amount of tax payable. In order to avoid this, an employer must apply for a dispensation, which satisfies HM Revenue and Customs (HMRC) that expenses claimed are either supported by receipts or verified by someone other than the claimant.
A common example of something which may be caught is mobile phones. If a company director has a mobile phone required for business, the tax treatment on the individual will be different in the following three scenarios:
Good stuff eh? See here for more information on mobile phones.
A dispensation, once approved, can be in place for several years (or indefinitely) and will mean saving work for the employer, the employee and HMRC - a win-win-win!
The following link will take you to the HMRC website, which has summary information as well as detailing the process for claiming a dispensation.
http://www.hmrc.gov.uk/paye/exb/schemes/dispensation.htm
NB It has been usual Revenue practice in the past to backdate the application to the start of the tax year (in this case, 6 April 2011), although there is no guarantee that this will be done in future. You will appreciate that the dispensation needs to be in place before 5 April 2012, therefore you should deal with this sooner rather than later.
