P11D practical issues and pointers
SWATuk’s Kathryn Jones provides some practical tips on processing P11Ds including how to deal with directors' loan accounts, cars, national insurance, expenses and dispensations, and filing payments and penalties.
P11D season is with us once again and accountants are likely to be inundated with significant amounts of information that needs to be processed within a very short time frame.
P11Ds need to be completed and submitted to HMRC by 6 July 2010. By this date the employer must also provide current employees with details of the information contained on the P11D. This can be provided as a photocopy or print out of the submitted P11D. Alternatively it can also be provided in the form of a letter or schedule, which is often the format adopted by larger employers with automated benefit recording systems.
Obtaining the information to complete the form P11D can be difficult. Often the firm will have prepared annual accounts to a date part way through the tax year and so detailed information should be available up the accounts date. It is worthwhile making sure that accounts preparation staff are sufficiently familiar with the benefit and expenses rules to identify and record relevant items during the accounts preparation process. However this inevitably leaves a period of the tax year for which no information has yet been received. It is imperative that the client is asked the right questions to ensure that all the necessary information is provided for preparation of the P11Ds. Many firms will use a letter with standard wording to request this information.
There are many types of expense or benefit that need to be reported on Form P11D and HM Revenue and Custom’s A-Z Guide can be a useful resource in determining what needs to be reported and how.
Additionally, HMRC has produced a ‘P11D Quality Standard’ that must be adhered to when submitting P11Ds or alternative returns of benefits in list format. It also sets out a number of other errors to watch out for. Some of the more contentious issues are discussed below.
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Dispensation woes
Hi Jon
You're lucky to get clients who even file P11Ds. Most of the small firms who come to me don't even know about them! Then you have to consider whether it's worth applying for a dispensation in case the Revenue ask why they haven't been filed before. I always think it's worth filing P11Ds for a couple of years if they've been missed in the past before applying for a dispensation, although a tax lecturer who used to be a HMRC inspector once told me they weren't all that bothered if no tax or NI was involved. Wouldn't like to trust that now though with the new penalty regime.
I've also found that they're usually reluctant to grant dispensations for business entertainment to sole directors on the grounds that there is no one else to vouch their expenses. A curious argument really as you could say the same about any other type of expense.
But better the devil you know. The last thing we want is for everything to be payrolled, as some large employers are apparently campaigning for, or PAYE will become a complete nightmare, especially with the new penalty regime for late payment.
Chris F
Staff expenses
You wouldn't have to report stationery on a P11D if it was solely for the office as there is no personal use. The only staff expenses you normally have to report are travel and subsistence (unless within the benchmark scale rates), entertainment, home telephone, etc. Anything where a personal benefit or a pecuniary liability exists. A pecuniary liability is where the employee was responsible for paying the bill, such as a mobile phone contract, which is why it is always a good idea to get bills in the company name.
Chris F
P11D woes
"...reimbursement of expenses incurred..." is reportable on P11D (booklet 480 3.2)
But Chapter 5 of the same booklet 480 says
."...an employee may buy stamps, stationery and items of equipment for the employer and be reimbursed the costs incurred from petty cash or by cheque.....such reimbursements do not feature on the P11D."
Does anyone know what this distinction is?
P11D woes
Chris
You are right - it seems if dare I say it, most small businesses or their accountants do not bother completing P11D's at all for non taxable expenses. Certainly for the majority of clients I take over from other firms. You also end up with the inevitable query from HMRC when you apply for a dispensation asking why P11D's were not sent in previously.
However the reality seems to be that when the client gets a PAYE compliance visit that the inspectors are not at all interested in the reporting of non taxable expenses anyway. Ever felt you are wasting your time trying to do things properly?
PIID woes
Yes, very much so! All these accountants who don't bother make you look a bit of a fusspot to new clients and puts a strain on relationships. I'm glad to say none of my smaller clients have had the pleasure of a PAYE visit yet but if the VAT visits are anything to go by I'd imagine most of them are pretty clueless. I always invoke the spectre of a future PAYE inspection as an incentive to comply with the expenses and benefits rules but as the years go by and the bogeyman never turns up it all starts to sound a bit hollow. I sometimes feel that by treating the accountancy profession as unpaid secret policemen the authorities are just driving our business into the hands of the cowboys.
Chris
P11D woes
Dispensations are fine, but recently I have noticed an increasingly hard line being taken by HMRC in respect of applications from small companies. Last year I would get comprehensive dispensations without query for even newly formed companies, now in nearly every case I get back a list of extensive questions about authorisation and reimbursement procedures which are difficult to answer and if you overcome this and are lucky you get a very narrow dispensation which is often so limited in scope as to be of little use. I just want to avoid the pointless exercise of reporting non taxable expenses. I also want the dispensation comprehensive, so if for example the client starts paying a different class of expenses than before then i don't want to be having to continually apply for dispensations to be extended in scope, as invariably with small companies you will not find out until you have prepared the accounts, some time after the P11D deadline. [If I find any taxable expenses when preparing the accounts then these are normally dealt with in the directors current account anyway]. I really do not understand this regime. Why have the 'working together' group et al sorted this one out. This is red tape crying out to be swept away.