Expenses and benefits—payroll requirements
Expenses and benefits—payroll requirements

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Expenses and benefits—payroll requirements
  • How expenses and benefits are generally dealt with for payroll purposes
  • Voluntary payrolling of certain benefits-in-kind
  • Exemptions for deductible amounts—the abolition of the dispensation
  • Trivial benefits exemption
  • Abolition of £8,500 threshold
  • Form P11D
  • Penalties

In addition to salary and other pay-related items such as overtime and bonuses, many employers will reimburse employees for work-related expenses and provide benefits for both incentivisation and reward. The tax treatment of non-cash earnings is discussed in Practice Note: How employment income is taxed—non-cash earnings or benefits.

At Budget 2014, a number of measures aimed at simplifying the administration of employee benefits and expenses were announced. This followed the Office of Tax Simplification's 2014 report on its review of employee benefits and expenses. The package of four measures, which took effect from 6 April 2016, included two items which fundamentally affected the payroll operation in respect of expenses and benefits, namely:

  1. abolishing the dispensation regime and replacing it with a statutory exemption for tax on paid and reimbursed expenses, and

  2. introducing a system of collecting income tax in real time through the ‘payrolling’ of certain benefits-in-kind

This Practice Note sets out the payroll operation on expenses and benefits following those changes, as well as a brief description of the regime as it stood pre-April 2016.

How expenses and benefits are generally dealt with for payroll purposes

In practice, the distinction between an expense and a benefit may be blurred (an employer reimbursing a restaurant bill, for instance, could be either an expense or a benefit, depending on the circumstances) and