Dispensations (for tax years prior to 2016/17)

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Dispensations (for tax years prior to 2016/17)
  • Introduction
  • What items were typically covered by a dispensation?
  • What types of employee were covered?
  • Necessary internal systems
  • Periodic review

From 2016/17 onwards a new provision was introduced to exempt reimbursed business expenses and benefits from income tax that would have been covered by a dispensation in previous years. There is no need for a new exemption from national insurance contributions (NIC) as payments in respect of specific and distinct business expenses incurred by the employee in carrying out his work are already exempt from NIC.

ITEPA 2003, ss 289A–289E; SI 2001/1004, Sch 3, Part VIII, para 9

Therefore the dispensation regime is no longer needed and was repealed with effect from 6 April 2016.

FA 2015, s 12

The rest of this guidance note covers the dispensations regime which was in place for 2015/16 and prior years. For a discussion of the new exemption, see the Expenses and benefits matched by allowable deductions guidance note (subscription sensitive).


Expenses and benefits paid by an employer to a director or employee are reported on the employee’s form P11D and are deemed earnings for tax purposes. If the expense or benefit is incurred solely for business purposes, then in years prior to 6 April 2016 the employee could claim a deduction on his Tax Return, make a claim on form P87 or write to HMRC. Effectively, this meant that in the computation of employment income the expense / benefit is added in and then subtracted again as a deduction, ie a nil result but one that still required the preparation of a form P11D and possibly a Tax Return.

This was an unnecessary administrative exercise and so, to save time and money, in years prior to 6 April 2016 HMRC allowed the employer to apply for a dispensation.

A ‘dispensation’ was a notice provided by HMRC to an employer agreeing that no tax was payable by an employee who received certain payments or benefits. This meant that these

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