What is a Dispensation?
One feature that makes umbrella payroll companies an attractive way of working for contractors and freelances, is that they can exercise a dispensation granted by HMRC for the authorisation and payment of expenses. Under the dispensation, HMRC issues a notice that allows the employing umbrella payroll company to reduce its administrative burden and offer contractors a better service, by not having to complete a form P11D or P9D at the tax year end showing all reimbursed legitimate expenses. However, contractors mustn’t view this as a licence to claim for expenses that have not actually been incurred! It is only fully-compliant umbrella payroll companies, that only allow legitimate business expenses, that can benefit from a dispensation. It absolutely does not mean that, just because certain items are covered by a dispensation, you can claim for them regardless, just because they are listed as claimable!
You may consider joining a umbrella company that (ab)uses its dispensation because it encourages you to increase your take home pay by claiming for expenses that have not been incurred. If so, then you must understand that if the tax man investigates you – that’s right, it’s you they will audit, not your umbrella payroll company- then you must be able to back up your claims with bona fide receipts.
So, just to make that absolutely clear, then – because it’s really important:
- The dispensation benefits the employer – MSL Forza in this case – by reducing our administrative burden and so enabling us to offer you a faster, more efficient and cost-effective service.
- Regrettably it does not allow you, the contractor, to claim for expenses that you have not incurred.