The requirement for a compliant expenses process as part of a travel & subsistence scheme is of critical importance when processing many thousands of expenses claims. This is a fact borne out by the recent announcement by Legitas, in which they admitted to making mistakes that may ultimately lead to a multi-million pound tax and National Insurance liability.
The announcement has been catastrophic for Legitas – culminating in a run on the company’s client base, adverse publicity and a potential for the transfer of any debt to the directors of Legitas or to the agency itself.
Many expenses policies are underpinned by a dispensation from HM Revenue & Customs (HMRC) confirming that expenses incurred by employees do not have to be subject to PAYE or reported under P11D procedures. Over the last 12 months, it has proved increasingly difficult for employers to secure a dispensation – with HMRC seeking an increasing level of compliance and demanding extremely robust procedures, which ensure that only legitimate expenses are processed.
The subject of dispensations was debated in the House of Commons on 1 March 2013 under the subject of ‘Temporary Employment – Tax Avoidance’:
John Robertson: To ask the Chancellor of the Exchequer pursuant to the answer to the Hon. Member for Worthing West of 17 December 2012, Official Report, column 567W on temporary employment: tax avoidance, how many such dispensations HM Revenue and Customs issued in 2012; how many instances of dispensations the specialist team reviewed in the same period; and how many dispensations were revoked as a result of those reviews. 
Mr Gauke: HMRC issued 265 new dispensations in 2012. The specialist team reviewed 2,163 dispensations and dispensation applications; of these, 1,861 were refused or revoked.
This means that seven times more dispensations were refused or revoked as granted. This can only mean that HMRC was not satisfied and that the process being operated was not sufficient to meet current demands.
Travel & Subsistence – the basics
In order to satisfy HMRC, the process and procedures surrounding any travel & subsistence scheme (whether in house or outsourced through an umbrella company) is the requirement for employees to work at a series of temporary locations and to incur legitimate travel & subsistence expenses, which are off-set against taxable income.
These principles must be followed in every case. To be accepted by HMRC all qualifying expenses must be genuinely incurred in accordance with current legislation, accurately recorded, and appropriately authorised and audited by the employer. Failure can result in significant financial liability.