Bespoke scale rates and transitional arrangements

08 February 2016

From 6 April 2016 employers will no longer be able to apply to HMRC for a dispensation in relation to expenses or benefits that they pay, reimburse or provide to employees and which would previously have been fully matched by a deduction from the employee’s earnings. All existing dispensations will cease to be effective after 5 April 2016.

HMRC has recently revised their Employment Income Manual (EIM) to cover the changes.

The EIM includes details about the new bespoke scale rate process and the transitional arrangements:

“Where an employer has agreed a rate other than that set out in the Benchmark scale rate Regulations in respect of its employees within the 5 years preceding the introduction of the exemption on 6th April 2016, transitional arrangements are in place to allow the employer to continue to use that rate until the expiry of that 5 year period.

Agreement to allow an employer to continue to use their previously agreed rate will be subject to the employer making a simple application to HMRC. Employers will also need to show that they have a system in place for checking that employees are incurring and paying amounts in respect of expenses, and that a deduction would be allowed in respect of those expenses.

An application to continue to use a previously agreed rate should be made in writing and will need to detail:

  • the rate agreed
  • the date of the agreement
  • the conditions under which the employer makes any payments
  • the checking system that they have in place to ensure that payments are only made on occasions where employees are in fact incurring and paying expenses of the kind reimbursed
  • that a deduction would (ignoring the exemption) be allowed under Chapter 2 or 5 of Part 5 ITEPA 2003 in respect of those amounts. See EIM30270.

Applications to continue to use a previously agreed rate will need to be made in sufficient time to allow an approval notice to be issued prior to 6 April 2016.

If an employer fails to reach agreement with HMRC for the continuing use of a bespoke rate prior to 6 April 2016, and continues to pay that rate, any amount in excess of the benchmark scale rates will be treated as a round sum allowance and chargeable to tax and NICs as earnings from the employment.”

CIPP comment

If you need to apply for approval then sooner rather than later is the key message as it will need to be in place by 6 April 2016. The new application form is available on GOV.UK and can be used for both new applications and for existing bespoke scale rates.

More news