Senior Policy Liaison Officer Chartered Institute of Payroll Professionals
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P11Ds: Annual expenses and benefits update

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24th May 2012
Senior Policy Liaison Officer Chartered Institute of Payroll Professionals
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Now that the PAYE year-end returns are out of the way - for the last time for some businesses - Diana Bruce of the CIPP turns her attention to issues likely to occur during P11D season, which isn't going away.

Last month the Real Time Information (RTI) pilot got rolling in earnest, and under the new regulations submitting P14s and P35s will be a thing of the past come 2013/14. However the same cannot be said for benefits in kind as these are not included under the RTI regulations. So employers will still be required to submit forms P9D, P11D and P11D(b) following the end of the tax year.

Without doubt RTI would be the ideal mechanism for payrolling. This is where employers process benefits and expenses through the payroll as cash equivalent amounts, resulting in employees being taxed in real time - the whole rationale for RTI - which would remove the requirement for a large element of year-end reporting. However, although not on the RTI remit, consultation on the integration of the tax and NI processes is underway. One of the areas being reviewed is misalignment between tax and NICs, so the complex benefits in kind legislation will most certainly be covered. Simplification is the aim of these reviews so surely payrolling will be part of the solution but we will have to wait and see what findings and recommendations are published later this year.

For now it is business as usual, so if you have provided your employees with expenses or benefits in 2011/12, you must report these to HMRC by 6 July this year using the following forms:

  • P11D - for most company directors and employees earning at a rate of £8,500 or more per year
  • P9D - for employees earning less than the £8,500 rate
  • P11D(b) - for reporting the total amount of Class 1A NICs due

Even if you haven't had to file any forms P11D, you must still complete and return form P11D(b) if HMRC has sent you one.

BusinessLink.gov has some very useful A to Z guidance pages which provide details of which expenses and benefits need to be recorded on your P9/P11Ds.

Dispensations

If you want to reduce the burden of reporting you may be able to gain a dispensation which would remove the requirement to report certain expenses and benefits to HMRC at the end of the tax year.  There is also no requirement to pay tax or NIC on items covered by a dispensation and once approved, the agreement will usually stay in place for five years.

There are two key requirements that must be met to qualify for a dispensation:

  • No tax liability must be attached to expense payments or benefits in question
  • The employer must have a system in place to ensure that no payments or benefits break the terms of the dispensation.

Many routine expenses can be covered such as fuel for company cars, business travel and subsistence and business entertainment. However there are also many common expenses that can not be covered including items such as mileage payments, taxable company cars/vans and private medical insurance.

Full guidance about items which do or do not qualify for exemption can be found on HMRC’s website under the Schemes that help reduce your paperwork section. This also includes links to information on PAYE Settlement Agreements (PSAs) which can be used to remove the end of year reporting for minor, irregular and hard to value expenses and benefits.

How to avoid making errors

HMRC frequently has to reject P11Ds and request resubmission because they do not meet the P11D quality standard. Errors will not only result in processing delays that could result in amendments missing the filing deadline. Incorrect employee tax codes could also be issued, generating more unwanted queries for payroll departments.

The P11D quality standard is a list of requirements that every form P11D must meet:

  • Include your employer reference
  • Include your employee’s name and National Insurance number. If you don’t know the number, you must provide their date of birth and gender
  • If you’re reporting a car that you’ve provided to an employee, include its list price
  • If you complete box 10 in section F (total cash equivalent of car fuel provided), then also complete box 9 (total cash equivalent of cars provided)
  • If you’ve provided a beneficial loan to an employee and are reporting it in section H, also complete box 15 (cash equivalent of loans)

If you submit your P11D information in list format rather than on P11D forms, then the quality standard requires that you must:

  • Present your list in an easy-to-read format using a font size no smaller than 11-point Arial when printed
  • Sort your list by employee, not by type of benefit
  • Include your employer reference
  • Include each employee’s name, NI number, date of birth and gender
  • Include all the expenses and benefits provided to an employee on the same list – HMRC cannot accept separate lists for each benefit
  • Show the code letters assigned to each benefit as on form P11D – these are the letters in the dark blue boxes at the left of each section of the form
  • Where the list contains payrolled expenses and benefits, the front of the list and each of its pages, are clearly marked ‘PAYROLLED’

Common errors

HMRC has produced a list of mistakes that they have identified as being the most common and can be easily avoided when you know what they are:

  • Submitting duplicate P11D information on paper where P11D information has already been filed online to ensure ‘HMRC have received it’. This causes processing problems
  • Using a paper form that relates to the wrong tax year – check the top right hand corner of the first page
  • Not ticking the ‘director’ box if the employee is a director
  • Not including some form of description or abbreviation, where amounts are included in sections A, B, L, M or N of the form
  • Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section
  • Sending P11Ds when you’ve also ticked the box in Part 5 of form P35 (in your Employer Annual Return) to indicate that P11Ds are not due
  • Where a benefit has been provided for mixed business and private use, entering only the value of the private-use portion – you must report the full value of the benefit
  • Not completing the fuel benefit where this applies. This means an amended P11D has to be sent in
  • Completing the ‘from’ and ‘to’ dates incorrectly in the ‘Dates car was available’ boxes by showing the whole tax year. For example entering 06/04/2011 to 05/04/2012 to indicate the car was available throughout that year. If the car had been available in the previous tax year, the ‘from’ box should not be completed and if the car is to be available in the next tax year, the ‘to’ box should not be completed

Class 1A NICs

In July each year you also need to tell HMRC about the total Class 1A NICs due on the expenses or benefits. The amounts declared on form P11D(b) must clear by 22 July if paid electronically or be received by HMRC by 19 July if paid by cheque.

However, if you have agreed a PAYE settlement agreement with HMRC then a separate payment of Class 1B NICs will be due by 19 or 22 October.

There are of course some common errors that can be avoided when paying Class 1A NICs:

  • Do not add the Class 1A amount to the payment of your PAYE/NIC for the current, 2012/13, deduction year, because the Class 1A payment due in July 2012 is for the previous, 2011/12, deduction year
  • Class 1A NICs should be paid separately, either electronically or by using the P30B CL1A payslip provided. Do not use one of the P30B payslips from the Employer Payment Booklet
  • Because the Class 1A payment is for the previous, 2011/12, deduction year, the accounts office reference used needs the correct ‘year ending’ and ‘tax month’ adding, making the reference 17 characters long. The correct accounts office reference number is printed on the P30B CL1A payslip that HMRC issue
  • To make a payment for 2011/12 Class 1A, 1213 should be added to your accounts office reference, making 123PA000123451213 (this reference is only an example and should not be used to make a payment). If paying by BillPay you need to add 1212 instead as BillPay is unable to accept ‘Month 13’
  • The last four digits are essential and make sure your payment goes to the correct year. If they are left off your payment will automatically go to the current deduction year instead. You can check your reference number by using the online reference checker
  • Each electronic payment method is different and if using one for the first time please follow this guidance
  • Another problem can occur if your Class 1A payment arrives before your P11D(b) return reaches your record as your payment may be automatically reallocated to the current tax year. To avoid this, make sure you submit your return by 6 July at the latest. Pay after you send your return, so any electronic payment clears by 22 July, or is received by 19 July if paid by cheque

Smartphones

Just as a final point, in February this year HMRC published a brief about the exemption for mobile telephones provided to employees. The brief confirms that smartphones fall within the meaning of mobile telephone in this context and can therefore qualify for the exemption. For many, this will simply confirm what you already thought but if not, for more information refer to the Revenue & Customs Brief 02/12.

Further information and guidance on reporting expenses and benefits can be found through the links below.

Diana Bruce is the senior policy liaison officer for the Chartered Institute of Payroll Professionals (CIPP).

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