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Are you ready for the major changes to the tax rules covering business expenses which come into force on 6 April 2016?

For decades the tax treatment for the reimbursement of expenses paid to employees and directors has remained unchanged.  Employee expenses, although not subject to PAYE or NI, count as taxable income and must be reported as such by employers on Form P11d, and declared on tax returns by employees.  Thankfully this often confusing, hassle filled system is changing from 6 April 2016.

At present employers can claim exemption from the above rules, but as a safeguard HMRC limits the dispensation to genuine business expenses.

From April this year the current dispensations will be scrapped and you will need to check that the system you have in place ensures that only genuine expenses are claimed and paid PAYE and NI free.

If you’re providing expenses under salary sacrifice arrangement the new rules won’t apply.  An example of this could be if you pay tax free travel expenses to employees in exchange for a percentage of their salary.  From April onwards employers will need to deduct tax and NI from such payments, with the employee having to reclaim the tax (but not being able to get the NI refunded).

Flat rate subsistence expenses, where you pay employees a standard amount (without tax or NI deductions) for food and drink when they are working away will not be adversely affected.  Many companies prefer this option as it removes the need for workers to get and keep safe receipts for low value items.  Under the new rules you can apply to HMRC to increase the standard subsistence rates which will then apply for up to five years.  If you’d like details on how to do this when they become available, or have any questions please do get in touch with Michael Burgess on 01782 279615.