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<b>Tax Feature:</b> P11Ds loom ' a few practical tips. By Rebecca Benneyworth

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13th Apr 2006
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The P11D season is about to start, and for those about to embark on this annual task, here are a few topical tips for this year.

Dispensations
There are a number of issues to consider regarding dispensations which have been granted. It is always wise for those preparing P11Ds or responsible for overseeing the task to review the dispensations in place for the year just ended before commencing the work on reporting. This will enable staff to have a clear idea of what expenses are covered and what are not. Reporting errors arising through not appreciating the limits of a dispensation are not uncommon.

Recognising which expenses are outside the exemption provided by the dispensation is a key task before work on analysis can start. Normally dispensations use the term 'qualifying travel' and this means that those responsible for P11Ds must have a good grasp of the travelling expenses rules, and in particular how they relate to the business before starting work.

Under this heading, those acting on behalf of P11D clients might consider applying for dispensations now for those clients who have not applied previously, or were last refused a dispensation some years ago. HMRC's current view is that the key to simplifying the annual reporting obligation is to extend the use of dispensations as far as possible, so new dispensations should be available for businesses which do not currently have them in place. Although not a very common practice, some offices are willing to grant dispensations for the year just ended provided they are agreed by 6 July.

Company cars ' available
Company cars are taxed on an individual to whom they are available for private use, irrespective of whether they are actually used privately. This can be a source of problems for smaller companies where a director may have a vehicle available to him, without appreciating that this will give rise to a tax charge.

The list price of cars bought new is not a difficult area, nor is obtaining the official emissions figure for newer vehicles, but second hand cars may present problems on both fronts. In particular, some HMRC compliance officers find that challenging list prices of vehicles can produce significant settlements, so it is wise to spend a little time researching list prices, and in particular extras fitted to the vehicle. For some manufacturers, this could add several thousand pounds to the list price. For a car with emissions taxed at 35%, the additional tax and Class 1A NIC (on a grossed up basis) is £308 per £1,000 of list price overlooked. This of course, could apply retrospectively, and as you can see represents a good result for an enquiry team. For emissions of 25%, the settlement would be £220 per £1,000 for a higher rate taxpayer.

Private fuel
Where employees reimburse the cost of private fuel, their records should be adequate to demonstrate that absolutely no private fuel whatsoever has been met by the employer. This will usually involve maintaining records of business travel which can then be compared to total mileage and the private element excluded.

Personal incidental expenses
The allowances of up to £5 per night in the UK and £10 per night overseas are de minimis amounts. This means that if they are exceeded, the amounts are taxable in full. If the employer reimburses employees the whole amount as part of the expenses claim, there should be a process to check periodically that no additional personal expenses are charged to hotel bills.

Travel
Travel to or from a permanent workplace is not 'qualifying travel' unless the journey is from or to another workplace (either temporary or permanent). Employees reviewing expenses therefore need a good understanding of these terms. Permanent workplaces are places that the employee 'attends regularly' for the performance of his duties. Therefore any journey to a place which is not a regular journey will be qualifying, and within a dispensation.

Difficulties normally arise when staff travel to a new workplace on a regular basis for a short period of time. Those preparing P11Ds will then need to be sure that the temporary workplace rules apply. Senior staff should ensure that any staff performing this function are adequately trained. Booklet 490 is a good place to start, but you may need to consider some internal training to be sure that staff are aware of the issues within your organisation.

Vans
This year for P11D's we have the new situation that vans used for business travel, ordinary commuting and for an insignificant amount of private travel are not taxable. Employers will need to consider the basis on which vans are made available, and the instructions to staff about private use to establish whether vans are taxable or not.

Employers with a significant van fleet must think about this now, as from April 2007 the benefit in kind on a van will rise to £3,000, with a further £500 for fuel. You will need to develop a policy regarding private use of vans, communicate this to staff and consider compliance activity to ensure that the policy is adhered to. Only then are claims that there is no taxable use of the van likely to be accepted.

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By Tsparke
15th May 2006 11:08

Car Dealership reply to John Genge
I read with interest your comment. As I have some car dealerships to contend with, could you let me know whether this takes effect from 6th April 2005 or 2006 please, and also the HMRC source of the information

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By AnonymousUser
19th Apr 2006 12:39

And take care with the online P35 declaration
Last year I encountered a number of problems by ticking the box "will be sent later" re. forms P11D when filing a form P35 online, only later to discover that none were required.

Strictly the correct way to deal with this is to submit a paper form P11D(b) confirming that no forms P11D are required.

I don't believe that it is possibly to file a "nil" P11D(b) online - there has to be at least one P11D to accompany the online P11D(b). This software flaw appears to have been repeated for 2005-06 and I hope that anyone from HMRC efiling development team who reads this corrects it for next year.

Last year I attempted to get around the paper form P11D(b) by repairing the form P35, in which the only repair was to amend the declaration tick-box from "will be sent later" to "are not due". This was apparently the cause of my subsequent problems (penalty notices issued, subsequently vacated on appeal). I am advised that this declaration should not be changed by online repair, and that instruction remains in force for 2005-06.

The other possible workaround is to predict "are not due" on the original online form P35, and later to override this by submitting any forms P11D that subsequently come to light (but get them in before the July deadline). I am not sure whether the online software at the Revenue web site will disable the possibility of online submission of the subsequent P11D and P11D(b) if you have ticked that declaration. Any takers? Are there punitive consequences for getting that declaration wrong provided that the follow-up is within the P11D filing deadline? (I think I would argue against any such consequences since it arises directly and solely as a result of a flaw in the online filing software provided by HMRC). If this workaround actually works then it may be the recommended practice, as you are protected from missing the July deadline for the paper "nil" P11D(b) followup through admin error.

Come to think of it, that entire section of the declaration on the P35 should be dispensed with. All they need to do is require a P11D(b) in all cases, leave out the commitment altogether from the P35, and permit online filing of a "nil" P11D(b). No P11D(b) by the July deadline ("nil" or otherwise) would trigger a penalty.

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