PAYE dispensation

PAYE dispensation

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Motor cycle owned by employer is made available by employer for part private part business use of employee. Running costs are paid by employer.

Without a dispensation, the full amount of the annual running costs, plus 20% of market value when first available, are included on form P11D, and the employee makes an expenses claim for business proportion of running costs.

Meticulous records are maintained of the business and private use, supported by strong independent controls.

It occurs to me that a dispensation from including the business proportion of running costs on the form P11D would have the twin benefit of (1) elminating the requirement for an expense claim and (2) reduce the Class 1A NIC payable by the employer on a reduced figure contained in the form P11D.

Am I right about the reduced Class 1A NIC charge? If so, would that reduction, by itself, give rise to a rejection of the dispensation application (all other factors being in favour)?

Clint Westwood

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By AnonymousUser
11th Apr 2007 13:30

Class 1A should not affect...
...an income tax dispensation. However, I suspect that HMRC will be unhappy to give a dispensation because they would then not be able to monitor the business/private use. My experience is that they are wary of something outside the ordinary. However, the only way to find out is to ask.

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By AnonymousUser
11th Apr 2007 23:00

Thanks for the reply
I don't understand why the situation is any more exposed to abuse or lack of monitoring than any other dispensation. All dispensations have in common two basic features:
1) Nothing is (initially) reported to HMRC in respect of items that are covered by the dispensation - so at that point there is nothing for them to monitor.
2) At any future time HMRC could undertake a PAYE audit at which time they can ask to see the records to support the claimed treatment. At that point they have available everything sufficient to monitor it, albeit in arrears.
But as I say these features are common to all dispensations, and I have difficulty seeing how this particular situation is distinguished from others or at greater risk of loss of tax to the exchequer.

The class 1A NIC position continues to interest me: Suppose that a P11D dispensation were applied for AND GRANTED. Would we then have to make a Class 1A NIC miscellaneous adjustment on the P11D(b) to account for the NIC that would have been due in the absence of the dispensation?

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By thehaggis
12th Apr 2007 20:52

You can't get a dispensation
A dispensation is only given where no additional tax is payable arising from the provision of the asset (s65(3) ITEPA). Since there is a tax liability, albeit that the employee can reduce the charge to some extent by submitting an expense claim, the full amount has to go on the P11D. Class 1A is chargeable on the full amount as it is an all or nothing charge.

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