Replies to Queries - 4 - Dispensation drop

Our client is in the construction industry and has over 100 employees. Historically there has been a dispensation in place for overnight accommodation and travel expenses. The dispensation has regularly been revised, with the last revision being approximately one year ago. The sum per night agreed is £60.

The Inland Revenue has withdrawn this dispensation and replaced it with one for £30 per night. The alternative is to have all expenditure receipted. The problem for the client is that £60 does reflect the actual expenditure, hence £30 per night is not of any use. To have all expenditure receipted would cause the client an administrative nightmare as well as possibly alienating employees.

The Inspector has stated that dispensations are now centralised and he is solely responsible for implementing national guidelines in our area. Previously, dispensations were granted at a local level. Our client has invited him to visit and has suggested keeping receipts for a period in order to demonstrate that the expenses are reasonable, but he will not budge.

Do readers have any similar experiences and, as there is no right of appeal, how can our client take the matter forward?

(Query T15,939) – Frustrated Traveller.

In order to avoid the administrative effort for the Inland Revenue in processing P11D information and then negating it as a result of a section 198 claim, the Inland Revenue encourages employers to seek a dispensation. However, the dispensation itself has no legislative basis. As such, the Inland Revenue is free to restrict the scope of a dispensation, or rescind it completely at any time. There is unfortunately no formal appeal process and therefore 'Frustrated Traveller' can only appeal by way of requesting the Inspector to pass the matter to a higher level within the Inland Revenue.

A dispensation is not issued as a means for employers to pay tax-free sums to their employees. From the comment on 'possibly alienating employees', one wonders if this is because they are actually staying in far cheaper accommodation and pocketing the difference. It is hard to see otherwise how they would be alienated simply by having to present an invoice perhaps once a week for expenses. There are no doubt a number of men on a particular site at any time, all of whom are staying away from home. Surely in this situation the company could arrange a single weekly payment direct to the hotel/guesthouse which would mean less and not more administration. In addition, the company would then receive a VAT invoice and could effectively reduce its costs.

The Revenue pays its own staff £25 per night as an unreceipted sum where they stay with family or friends plus £4.50 for incidental expenses (see Taxation, 5 April 2001). Perhaps this is the source of the proposed £30 allowance?

Overall 'Frustrated Traveller's' prospects of success do not look good. The following is suggested as a plan of action:

(1) Require all employees receiving the allowance to obtain receipts and present them to the company for the next month.

(2) Write back to the Inspector giving details of all payments made in the month and provide copies of all receipts.

(3) Employees in the TV and film industries are allowed an overnight allowance of £60 outside London or £85 inside London (Taxation, 13 December 2001). The Taxpayer's Charter requires all taxpayers to be treated equally and therefore one would expect similar allowances to be available to all employees.

(4) Ask the Inspector to reconsider the position and, if necessary, refer to his District Inspector. – Wentworth.

Approximately eighteen months ago, I undertook a review of the dispensations for one of our major clients. Most of the points were agreed without discussion, but hotel and overnight accommodation were both refused. After protracted correspondence, it was agreed that provincial hotel costs of up to £60 per night would be allowed. London hotel costs of £110 and the overnight allowance of £20 per person continued to be refused.

We agreed that if the Inland Revenue could provide us with a list of London hotels that charge less than £110 that were on a par with the regional hotels that charge £60, we would revise our dispensation claim accordingly. The Inland Revenue agreed (although reluctantly) to £110 per night for the London hotels but continued to refuse the overnight allowance on the grounds that it was a round sum.

I wrote back to the Inland Revenue reiterating our client's claim that £20 per night was not excessive and quoted the above sources. I further said that if £20 was too excessive an amount, we would be prepared to reduce it to the figure agreed by the Inland Revenue Staff Federation. As if by magic, the £20 ceased to be a round sum allowance but became an agreed amount to be paid for employees having to stay overnight, and was written up as such in our client's staff manual. – Johnson.

Extract from reply by 'Elder':

Surely employees are likely to be much further alienated if they become subject to tax on the difference between £60 and £30 per night. If the employer bears the tax, it would have to be computed on the grossed-up equivalent, with knock-on effects for National Insurance contributions. Hence the administrative costs and inconvenience should be borne.

Inland Revenue Statement of Practice SP16/80 (lorry drivers) emphasises the importance of vouchers but says that if, exceptionally, drivers are unable on any occasion to obtain bills or receipts, they must make a note at the time of the date, place and amount spent. In the update published in the Revenue Tax Bulletin for August 1993, at page 88, there is mention of 'a deduction for the reasonable cost of meals taken in conjunction with overnight accommodation'.

As regards the £30 benchmark quoted, this seems to compare broadly with amounts in an agreement between the Revenue and the Road Haulage Association, of which particulars were noted in Readers' Forum replies to Query T15,922 in Taxation, 6 December 2001 at page 262.

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