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church employees, expenses and HMRC

By Stephen Mathews | 29 August 2014

church employees, expenses and HMRC

"From time to time, our church employees incur expenditure in the course of their duties.  Do we really have to include this on the year end P11D?"


Without an HMRC dispensation or a PSA, then any taxable expenditure that you as an employer reimburse to your staff should be included on the P11D or P9D (return of expenses and benefits) and should be included by the employee in their own tax return.  The reimbursement is treated as taxable income, however, the employee can claim a deduction if the expenditure qualifies as an ‘expense of employment’. To address this waste of time, employers can apply for a dispensation, and if successful a notice will be granted by HMRC which removes that reporting requirement and any requirement to pay tax or national insurance.  Once granted, dispensations last indefinitely but are kept under review by HMRC.


Dispensations do not cover all types of expenditure but are limited to those items for which your employee is able to get a full tax deduction.  In short, this is expenditure that is incurred wholly, exclusively and necessarily in pursuit of the work of the church or charity.  So, work related travel costs can be included, as opposed to paying for the pastor’s annual holiday which can’t.


For more on PSAs; how to apply for a dispensation and the types of expenses that can be included see our downloadable guide


Image by Anne Hornyak, used under a Creative Commons Licence

Posted by Stephen Mathews
Stephen is a Senior Consultant at Stewardship and has spent over 25 years in the accountancy profession. Stephen is a trustee for a number of small Christian charities and has been involved in various church leadership roles for over 20 years.


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