EIM31657 | The Schedule E expenses rule: incur and defray out of the emoluments: dispensations

If HMRC is satisfied that a payment made or a benefit provided to an employee would not give rise to any additional tax payable a dispensation can be given, see EIM30050. Typically this will be because the amount of earnings represented by the payment or benefit would be matched by an equal deduction for an expense under one of the deduction rules.

Where a dispensation has been granted for particular earnings no deduction is possible for the equivalent expenses. Section 334(2) ITEPA 2003 states that where an expense has been reimbursed or a payment made in respect of that expense then a deduction is only permitted to the extent that the payment or reimbursement is included in earnings. Where there is a dispensation the payment or reimbursement is not included in earnings and so there can be no deduction for the equivalent expense.

For tax years 2016 to 2017 onwards dispensations have been replaced by an exemption for amounts which would otherwise be deductible.