COMPLIANCE
HMRC loss at tax tribunal over P11D dispensation row
Justine Riccomini MSc FFTA AIPA Chartered MCIPD ChFCIPP, head of taxation, the Institute of Chartered Accountants of Scotland (ICAS) explains how NWM Solutions Ltd won its case on P11D dispensations at the First Tier Tribunal (FTT)
Key points l the NWM Solutions case provides an interesting insight into HM Revenue and Customs’ (HMRC’s) approach to employment taxes and P11D dispensations l almost £2 million was at stake l the tribunal found in favour of the employer. I n the NWM Solutions Ltd v HMRC case, which was decided in April 2023, the P11D dispensation took centre stage. This serves to remind us that any aspect of taxation can potentially come back to bite us. However, in this case, it wasn’t the employer (an umbrella company) who received the bite – it was HMRC. Obsolete legislation There’s no longer a requirement for an employer to obtain written permission to exclude certain benefits in kind from a P11D (a P11D dispensation), due to the introduction of so-called ‘benchmark rates’ for travel and subsistence payments. For the 2015/16 tax year, these are set out at Employment Income Manual (EIM)05231. The rules contained within Section 65 of the Income Tax (Earnings and Pensions)
Act (ITEPA) 2003 and Section 70(2)(c) of ITPEA 2003 (which were removed from the statute books on 23 March 2015 under the Finance Act 2015) required the employee or director to have ‘paid away’ the expenses. In other words, they had to have incurred an expense for it to have been reimbursed to them free of income tax and National Insurance contributions (NICs) under the terms of the P11D dispensation. The employer was supposed to check the expenses had in fact been incurred. The requirement to actually incur additional expense (as opposed to taking a home-made packed lunch) was also contained in EIM05231 for the 2015/16 to 2018/19 years. However, from 6 April 2019, the legislation at Section 289 of ITEPA was amended by virtue of Section 289A(4A) ITEPA 2003 in the Finance Act 2019, to lower the checking requirement to that of ensuring qualifying travel had been undertaken. This new guidance is set out at EIM30225. In this case, the employer was paying scale rate expenses for subsistence. When HMRC demanded to see receipts for all the meal allowances paid, the employer found they couldn’t provide them in many cases. HMRC didn’t revoke the dispensation as it would have been
entitled to do under Section 65(6) ITEPA 2003. Nevertheless, it argued NWM Solutions owed almost £2 million in income tax and NICs. Cases considered The following cases were referred to by the judiciary in helping them reach their decision: l Pook (Inspector of Taxes) v Owen l Donnelly (Inspector of Taxes) v Williamson l Cheshire Employer and Skills Development Ltd v RCC l Reed Employment plc v RCC. Turning point At Paragraphs 66-68 of the judgment,, Judge Austen states: “The parties are in ostensibly simple as a P11D dispensation would be the subject of a tax tribunal case?" "Who would have thought that something as
| Professional in Payroll, Pensions and Reward | October 2023 | Issue 94 18
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