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According to accounting firm UHY Hacker Young, HM Revenue & Customs (HMRC) has a questionable dispensations policy on expenses.

It frequently has the effect that, unlike ordinary taxpayers, employees of HMRC do not have to provide receipts to prove expenses have actually been incurred.

One example of this is a £100 allowance for an overnight stay in a London hotel by an HMRC employee.

No questions asked 

Clive Gawthorpe, partner at UHY Hacker Young, said that accountants who frequently faced HMRC’s challenges over expenses of as little as £10 would find it a little ironic that HMRC itself ran such a liberal “no questions asked” system for its own employees.

The accounting firm used the Freedom of Information Act to obtain details of HMRC’s own policy on employee expenses.

Other examples of expense claims that do not have to be supported by receipts include £20 for an evening meal while away overnight, £6.50 for a meal when out of the office for more than 5 hours and £14 for two meals when out of the office for more than 10 hours.

In addition, passengers in a vehicle can claim 5p per mile when travelling for work, while the vehicle’s driver can claim 5p for each passenger he carries, in addition to his normal mileage allowance.

Unbalanced approach 

Gawthorpe said that another questionable HMRC practice was urging its employees not to publicise rates and allowances in relation to expenses, even though this was not confidential information.

“There is no logical basis to this restriction, and it just illustrates the HMRC’s unbalanced approach to dealing with dispensations within its organisation and towards other employers,” he noted.

In particular, in the National Insurance Manual, paragraph NIM05680, employees are told that, “Although they are not confidential, you should not publicise rates and allowances used by the Civil Service in relation to expenses."

According to UHY Hacker Young, one particular allowance reimburses HMRC employees for free overnight stays with friends or family regardless of whether any cost has actually been incurred.

Clampdown on dispensations

When away on an overnight business trip, HMRC employees have the choice of staying at friends or relatives’ homes instead of a hotel – and claim £25 for the convenience.

“As the HMRC has such a relaxed policy about their employees’ expenses, we think it would be appropriate for them to take a more understanding approach when dealing with the issue with other employers,” Gawthorpe concluded.

Earlier this year HMRC announced that they would be clamping down on the use of those limited dispensations that it had granted to some UK employers.

This clampdown would include the retrospective revoking of the right to accept some expenses claims without invoices, a move that could land employers and  employees with a substantial tax bill.

Scale rates 

Nichola Ross Martin, editor of AccountingWeb.co.uk, questioned whether UHY's revelation was as big a story as it seemed.

She qualified as a Chartered Accountant in 1990 and ran her own tax, audit and accountancy practice in Kent from 1994 to 2001. She then worked as tax director overseeing company taxation for a year and a half before setting up her own tax consultancy. 

“It seems that many accountants and employers do not realise that scale rates may also be used to cover business travel, subsistence, and incidental expenses when employees work in the UK. Claims will vary considerably as employers must use a random sampling technique in order to pay scale rates in this way," Ross Martin said.

Employers may like to know that HMRC will afford the same treatment to employees.

HMRC's latest internal guidance in its Employment Income Manual (EIM) indicates that employers can be allowed to agree their own “in-house” set of scale rate payments which may be paid to employees to reimburse them for business expenses.

Once a scale rate has been agreed, it may be paid without the normal requirement for employers to inspect employees' receipts, and employees in turn need not keep and account for their receipts.

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