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P11D season: Get the details right

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25th Jun 2012
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Two dates are ingrained on the mind of anyone who deals with payroll matters. One has now passed for this year (19 May - submission of form P35) and the other is in less than two weeks time (6 July - submission of P11D forms), explains Jennifer Adams.

Some of the questions posed in Any Answers suggest that completing a form P11D is surprisingly not straightforward, with many questioning when one should be submitted. This article attempts to bring together the more ‘non- straightforward’ points and thus hopefully save time searching HMRC’s Guide 480 (Expenses and Benefits) for the answers.

Obligation to submit

A number of recent postings queried the obligation to submit for directors - the answer is to go back to first principles and ITEPA 2003 s 5 which states that “the provisions of ... employment income ... that are expressed to apply to employments apply equally to offices unless otherwise states”. Any office holder (to include non-executive directors) should be subject to PAYE whatever the amount of income received (even £NIL); ESC A37 (Tax treatment of directors fees received by partnerships and other companies) is a separate issue and in any event is invariably rare.

A payroll registration may be required but do P11D’s need to be submitted? The rules governing the tax treatment of benefits in kind (BIK) are to be found under ITEPA 2003 Pt 3, the provisions known collectively as ‘the benefits code’. The code applies in its entirety, any received needing to be declared unless the employment is ‘excluded’. Submission is required where benefits and/or expenses (including those reimbursed) are provided by the company to:

  • All directors and employees earning in excess of £8,500 (in cash payments and /or benefit cash equivalent)
  • full-time working directors earning less than the limit but owning more than 5% of the share capital

Part-time directors earning less than the limit and owning less than the 5% therefore do not come under the rules and there is also no obligation if all benefits and expenses are covered by a dispensation or PAYE settlement agreement (PSA).

petersaxton summarises the position for a full-time director owning more than the 5%:

“If a company doesn't pay wages and doesn't provide taxable benefits and round sum expenses but does reimburse expenses they would have to set up a payroll scheme and either apply for a Dispensation or prepare, submit and distribute P11Ds”.

How to save time and costs

Many comments bemoaned the time cost in preparing P11D’s that will only eventually result in a £NIL tax charge as the director/employee will, in turn, claim the P11D expense figure on their Tax Return but jem suggests a way round this under, as having spoken to HMRC his firm just ticks “the P35 box stating that no P11d’s are due and then submits a P11D if it is subsequently found to be needed”. Euan MacLennan reminds that ‘ticking the box’ is for information purposes  only - penalties being due if the P11D forms are found to be due but are not submitted by 6 July and don’t forget to press the ‘submit button’ when you do send the form!

Dispensations

The majority of Any Answers respondents thought that a dispensation should be sought for all the ‘one man band’ companies on their books as a matter of course not least because it would cover any future HMRC queries but also because they are now ostensibly easier to apply for. 

taxhound commented that “You can apply on line for dispensations now (form p11dx) and I have had a quite a lot of success in getting these for quite a few one man limited companies I get the client to fill in a P11dx and then copy there (sic) answers into the online application (which for some reason is not identical but there you go...)

Even if a dispensation is granted be reminded that it does not cover every benefit and/or expense, further, HMRC is supposed to review them regularly to ensure their validity (the HMRC website suggests they do this every five years but has anyone known this to happen?)

The reimbursed expenses really need to be checked every year. The question of who does this chore for checking each company client also produced a number of comments. the consensus of opinion being that it would be a difficult procedure to ask clients to prepare the paperwork (most won’t be bothered) or have the knowledge to “go through the accounts, see whether any P11Ds are needed, prepare, submit and distribute any P11Ds or state they are not needed on the P35 or phone HMRC”.

It is obviously too late to apply for dispensations this year or to take jems route of ticking boxes but possibly applying is something to put on the ‘To Do List’.

The future for P11D’s

The powers that be at HMRC introducing Real Time Information’ (RTI) appear to be aware of the P11D pain as the very last point in the discussion document on ‘Improving the operation of Pay As You Earn (PAYE)’ published on 27 July 2010 confirmed that the new RTI was not intended to include BIK assuming that the procedure would “continue to be returned annually in areas using form P11 d as it is now”. At the Payroll World Spring Update Conference in March Phil Nilson, the employment strategy manger at HMRC’s business customer unit’s employer team responded to a question from the floor by saying that an earlier consultation on including benefit in kind in RTI had resulted in it being “put in the long grass”. This seems to have been confirmed in the follow up document ‘Improving the operation of PAYE: collecting Real Time Information’ published in Sept 2011 where interestingly there was not a word about BIK and P11d’s.

Meanwhile the old system remains and if you still have P11D’s to complete and submit in the short time left before the submission deadline it might be worth taking a few minutes checking out Diana Bruce’s article which lists some common errors made when preparing P11D’s.

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Replies (7)

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By whiteandco
25th Jun 2012 14:41

5 year check on dispensations

I have several clients who I applied for dispensation some 15 years ago, which means we have just gone through the second review and believe me, these come us as regular as clockwork.

The amusing thing is, although HMRC accepted my renewal letters, they responded direct to the Client because they said they did not have the required authorisation to deal with me, even though I am authorised to submit the Clients payroll returns online (and do) and they accepted my letters five years ago and responded to me.

A telephone call discovered that apparently this department cannot access the main system which is why they could not deal with me directly.  When I asked what I could do to correct this they initially said to complete a 64-8, when I said, obviously, this has been completed and submitted because otherwise I would not be able to submit payroll returns online, they didn't have an answer.

Yet another HMRC lack of joined up systems!

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By quotes4life
28th Jun 2012 15:23

P11D and Life Insurance

If you have clients that are currently getting a P11D charge for life insurance that is being paid for by the company then help them out. The new relevant life policy can be paid for by the company for personal life insurance and used as a legitimate business expense.

http://www.relevantlifepolicyinsurance.co.uk

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By Barkster
26th Jun 2012 08:53

Still unclear on expenses

I have several "one man band" Ltd Cos and I always urge them to pay for everything via the company debit or credit cards and to avoid using their own cash and being "reimbursed".

But I still am not sure if, having done this, we still have to report the travel & subsistence, entertaining etc they have incurred whilst on business on a P11D ? (and subsequently claim for those expenses on the tax return) even though they have never had the cash pass through their hands.

 

I also have a company where odd bits of stationery are purchased with their own cash and then reimbursed, and the mobile phone bills are in their personal names and the company reimburses them for those. Do these have to be reported ? (we have always done so).

I hate P11D's.

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Nichola Ross Martin
By Nichola Ross Martin
28th Jun 2012 10:43

Expenses

I hate P11Ds too, but I imagine that we are all going to loathe RTI a lot more.

The whole system of needing a dispensation in respect of expenses incurred "wholly, necessarily and exclusively"  is potty - if only MPs had to do this, they might work out what a time waster this is and be interested in changing the law.

Rant over

Barkster -

f you do not have a dispensation in place (which you can apply for with a one man company as it goes, just ensure that you have an agreement with your accountants that they will do a double check of expense claims from time to time to verify that you are doing what you should be doing), you will need to report expenses paid on behalf of employees.

If you have an employee using an employer credit card then the company is paying expenses and you need to report them. You don't need to report purchases of stationery etc see s316 ITEPA 2003 as there is no tax charge for the provision of work accommodation, services and supplies. Ensure no private use of an employer's card.

If you are paying an employee's mobile phone bill then that is a different story as the payment is on account of a pecuniary liability of the employee, the payment is taxable as earnings s62 ITEPA 2003 - you should gross that up via the payroll. To unravel the consequemces of failing to apply PAYE it might be easier to get the employee to reimburse the employer and then have the employee submit a claim based on actual phone calls.

Virtual Tax Support for acccountants and advisers: www.rossmartin.co.uk

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By GWhaley
29th Jun 2012 15:25

P11d

I cannot seem to get a straight answer to this - I am obviously missing the point. An employee pays for a rail ticket himself for a business trip and claims via petty cash. If this is reported on the P11d online, then Class 1A is automatically calculated even though it is a genuine business expense.

The employee would then enter it as a business expense on his tax return to avoid BIK tax. What happens if, apart from this item, he has no need to do a return?

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Nichola Ross Martin
By Nichola Ross Martin
29th Jun 2012 17:48

Should not be any Class 1A

What software are you using? If you do a paper P11D you would enter this expense payment at Section N.

Recommend that you apply for a dispensation for 2012/13!

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Replying to tom123:
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By GWhaley
03rd Jul 2012 22:12

Class 1A

Thank you for your reply Nichola - yes, I will apply for a dispensation. However, am still curious as to how the system works ie the online submission forms of HMRC's own software does this automatic calculation. This is fine if the expense is a true BIK but there is no facility for handling genuine re-imbursements. Surely I cannot be the only person in the universe to have come across this?

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