Preparation of P11d

Where to add council tax?

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Company director rent and council tax is paid by the company. My question, where on p11d do we add the council tax ? 

Your help is much appreciated.  

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By FactChecker
24th Apr 2024 20:21

"Company director rent and council tax is paid by the company. My question, where on p11d do we add the council tax ?"

If by that you mean the individual taxpayer (company director) had a Council Tax bill to pay for their personal property ... but the Company paid that bill (which was not its liability) on behalf of the Director ... then that payment should have been treated as earnings by the Director (and so processed through Payroll, subject to IT and NICs, and reported via RTI).

So the answer to your question is ... you don't!

For future reference ... BiKs are non-cash payments.

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Replying to FactChecker:
By Ruddles
25th Apr 2024 08:09

Not true. Settlement of pecuniary liability. Earnings for NI purposes, P11D benefit for tax purposes.

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Replying to Ruddles:
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By FactChecker
25th Apr 2024 19:47

Whilst "BiKs are non-cash payments" was a bit of a simplification, I'll admit to being intrigued by your comment (as in I may be wrong but if so would like to know more).

The various HMRC EIMs are a tad unclear when it comes to 'pecuniary liabilities', but those I've found (such as "EIM00580 - Employment income: benefits in kind treated as earnings under Section 62 ITEPA 2003: benefits of direct monetary value to the employee: employer paying employee's debt: the pecuniary liability principle") seem to point to this being earnings under PAYE.

And Section 62(3)(a) ITEPA 2003 (which it references) simply confirms that “money’s worth” means something that is of direct monetary value to the employee - which IMHO describes settling the employee's personal bill.

Although EIM00585 gives some exemptions relating to Council Tax, they are all in essence where the liability was originally with the ER not EE - which seems unlikely in this case.

So what have I missed (apart from a brain cell potentially)?

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Replying to FactChecker:
By Ruddles
25th Apr 2024 20:32

Perhaps you should have read on to EIM00590

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Replying to Ruddles:
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By FactChecker
25th Apr 2024 21:41

Indeed, it seems I should (a good example of which I accuse other people)!

But I'll admit to being puzzled ... it all seems to be set in motion by the very opening sentence: "The employer cannot operate PAYE when making a payment to a third party such as a gas company, or British Telecom" - but I don't follow *why* that statement is made?
To the best of my knowledge (or at least recollection), many items (for which EE has the pecuniary liability but that the ER pays for direct on their behalf) have been treated as earnings and put through the Payroll subject to PAYE.

Presumably the forthcoming mandation of 'payrolling' BiKs will make it harder to discern what's actually been done (especially since HMRC have never shown much interest in the accurate calc of NICs).

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Replying to FactChecker:
By Ruddles
25th Apr 2024 21:54

The point is- if the employer settles a bill on behalf of the employee, from what is the employer going to deduct PAYE tax? You might say that it comes out of the cash element, but what if there is no cash element?

Of course, the counter to that is - in the event of no cash element from what is the employer going to deduct the E’ee NI, which is subject to PAYE procedures? I confess to always having been troubled by this concept but it seems to be a necessity, given that the P11D affords a mechanism for collecting the tax but not the Class 1 NI.

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Replying to Ruddles:
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By FactChecker
25th Apr 2024 23:26

"from what is the employer going to deduct PAYE tax?"

I get your point ... but what I observed in practice (albeit the best part of a decade ago and strictly against the rules of RTI) was ER describing the amount paid - in this thread's case for Council Tax - as a 'salary prepayment' (or occasionally as a 'loan repayment') and putting it through the next Payroll run as just that.
[Most software at the time had flags that you could set so that for this type of pay element it would be treated as 'pay' for PAYE purposes but not get included in the Net pay routine].

Not a lot 'correct' going on there - but it avoided the nightmare (as they saw it) of generating P11Ds and everyone was happy (although in HMRC's case due to blissful ignorance).

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Replying to FactChecker:
By Ruddles
26th Apr 2024 22:32

But in your example the employee ends up paying the bill, which is quite different from the employer paying it on his behalf.

It doesn’t get away from the fact that you can’t deduct an amount from something that doesn’t exist.

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Replying to Ruddles:
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By FactChecker
26th Apr 2024 23:10

You'd think wouldn't you (your first point) ... and I do understand your second one.

But I've certainly seen (quite often albeit a decade or so ago) where EE turns up at HR with, say, a completed form for Season Ticket Application + agreement signed by them and their manager (requesting a cheque for the season ticket and authorising deductions from EE's pay against a 6-monthly schedule ... aka ST Loan).
And the cheque would invariably be made out to XYZ Transport, not the EE.

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Replying to FactChecker:
By Ruddles
27th Apr 2024 09:46

We’re not disagreeing. Simply talking about two quite different agreements between employer and employee. (1) Employer agrees to sub/lend/advance/whatever and pays for the item, recovering from employee. Nothing to do with tax of any description (except perhaps loan BIK).

(2) Employer agrees to pay employee’s liability outright with no recovery. Taxable. Via P11D.

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Replying to FactChecker:
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By Sabine
26th Apr 2024 21:36

Thank you for taking the time to respond to my question. Actually, the company is providing the accommodation to the director, hence BIK applies for the rent, the council tax bill is in the companies name and the company is paying the rent and council tax for the directors accommodation. My question, do we need to add the council tax to the P11d benefit in kind amount for living accommodation , and if so, where would you add it?
The company is not registered to payrolling benefit in kind, therefor all BIK to be reported on P11d for 2023-24 tax year.
Gov.uk guidline is vague on council tax and hmrc helpline staff is also only reading from the same documents.
I hope this clearifies the issue.

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Replying to Sabine:
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By FactChecker
26th Apr 2024 22:58

Thanks for the clarification ... yet again only needed due to a lack of care by me when reading your post! [I focussed immediately on your question and hadn't noticed the "Company director rent and council tax is paid by the company" preface to it.

So you can now safely ignore most of my previous responses (and not just because of Ruddles' comments on them) ... because it seems you are now saying that liability belongs to the ER not EE - and it's 'just' a matter of the BiK reporting (how much and where)?

Of course that begs a number of other questions ... such as:
- does the company own the property (or have a lease on it)?
- is this 'temporary accommodation'?
- is availability to director for a fixed period?
- is the accommodation solely for the director?
- is the director the only director of company?
- is there any sense in which provision is required for work?
- who pays any service/utility/etc charges on property?

It may look I'm wandering off-piste vs your actual question, but the answers to those (and other unasked) questions can affect whether the CTax is deemed to be an additional part of the benefit.

So I'm afraid we're back to the usual answer ... when things aren't simple, b&w cases (with everything known) then you need to talk to your accountant as a public forum isn't going to get you an answer on which you can rely.

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Replying to FactChecker:
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By FactChecker
26th Apr 2024 23:21

If you want a DiY answer, feel free to have a read of https://www.gov.uk/expenses-and-benefits-accommodation - with the usual caveat that, whilst it seems clear, like all GOV.UK guidance it's been simplified to the point of not being a guaranteed correct answer in all situations.

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Replying to FactChecker:
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By Tax Dragon
27th Apr 2024 07:21

I think council tax is the liability of the occupant (the director) not those with 'higher' interests (for example the landlord and the tenant company). So there are here two benefits, the living accommodation and the payment of the director's liability (the council tax). The second is treated as Ruddles says - payroll for NI, P11d for tax. It is not part of the living accommodation benefit - and as I read it that is the opening question.

The council tax might be a DLA matter; the accommodation benefit isn't.

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Replying to Tax Dragon:
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By FactChecker
27th Apr 2024 16:21

Hence my (maybe too subtle) tongue-in-cheek reference to 'if you want a DiY answer' via the as usual simplified GOV.UK guidance. The link I provided (which is where many a DiY'er would first alight) opens unequivocally with:

"As an employer providing accommodation for your employees, you have certain tax, National Insurance and reporting obligations.
*What’s included*
As well as the costs of the accommodation itself, this includes:
- Council Tax
- water and sewerage charges
- heating, lighting and cleaning
- repair, maintenance and decoration
- furniture for daily use
- staff for upkeep of accommodation, for example gardeners and cleaners"

At this point I suspect that many a lay reader would stop reading and go 'aha, so the council tax is simply lumped in as part of the accommodation costs'.

However, having mentioned the need to report on form P11D + pay Class 1A NICs on the value of the benefit, the guidance goes on to say (on a different page):

"Council Tax, water and sewerage charges.
* If your employee covers the cost and you reimburse them, you must:
- add the amount you reimburse to their earnings
- deduct and pay Class 1 NICs and PAYE tax through payroll.
* Or if you cover the costs directly, you must:
- report on form P11D
- deduct and pay Class 1 NICs (but not PAYE tax) through payroll."

... this of course being the point that Ruddles has been making all along (that the key is *who* actually pays the C Tax).

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Replying to Tax Dragon:
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By FactChecker
27th Apr 2024 16:39

"I think council tax is the liability of the occupant (the director) not those with 'higher' interests (for example the landlord and the tenant company)."

I skipped over this bit in my (over)lengthy reply - partly because it doesn't seem too pertinent to OP's question (despite my attempts to shoehorn it in!), but mostly because it's debatable (as in there's no consistent b&w answer).
Not really an area of my expertise (if anything is any more), but past experience leavened with a dash of logic and supported by a brief trawl through Google, gives every answer under the sun.

If there's a 'default' it would appear to be that it starts as the liability of the property owner - but can (and often is) then 'transferred' onto the leaseholder (or in similar manner to the tenant).
The cop-out 'legal' answer on many Council sites is that the liability rests with the person named on the Council Tax bill!
So I guess, as always, on a case by case basis one needs to follow the contract trail.

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By cinnamint
25th Apr 2024 07:32

Those payments are not benefits. I would have posted the payments for said rent & c/tax to the DLA.

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Replying to cinnamint:
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By Tax Dragon
25th Apr 2024 20:14

You would unilaterally decide who pays, director or company?

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Replying to cinnamint:
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By Paul Crowley
26th Apr 2024 22:42

Me too, after discussing it with the director.
Reason being that I would usually only find out about it after the event.

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Replying to Paul Crowley:
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By Tax Dragon
27th Apr 2024 07:23

How does your approach vary if your discussion happens after the making good deadline in early July?

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