Avoid P11D meltdown with Kate’s last minute tips
Payroll expert and lecturer Kate Upcraft continued her crusade this spring to help businesses and payroll managers adjust to rule changes brought on by Covid-19 with a webinar on P11D traps and tangles.
The trigger for this week’s Payroll Unplugged webinar was the impending P11D deadline on Monday 6 July, which focused on HMRC’s relaxations around benefits in kind that were introduced as a result of the Covid-19 lockdown.
The virus outbreak complicated benefits in kind reporting this year, she explained. “Some of you will have had people in lockdown at the end of 2019/20, for which some of you will be about to submit P11Ds. The majority of furloughed people will be in 2020/21. So this time next year we’ll still be looking back at something that we hope have faded from our memories,” Upcraft explained.
Though 6 July 2021 is a long way away, she urged viewers to “keep records of what happened” so they’ll be able to document the decisions that were made this year.
During her introduction, Kate talked about hopes that HMRC might consider delaying the traditional 6 July deadline for P11Ds – but that has not happened.
“Many people are struggling to get hold of data and pulling together PSAs [PAYE settlement agreements],” she said. “I feel your pain. The next few days are very hectic.”
Though the 6 July deadline remains in place, if people do miss it and end up with P11D penalty there are more opportunities this year to appeal on the grounds of a Covid-19-related reasonable excuse. “With extensions to reasonable excuse, if the worst happens don’t think of it as the end of the world. I’m sure there will be much more of a light touch,” she advised.
Questionable carpet expense
Throughout the interactive session, Kate Upcraft fielded questions from viewers, including one that touched on a director for whom the company was buying a carpet. The director paid the invoice personally and was reimbursed. Was the repayment a taxable expense?
The answer was unequivocal: “He has received money that’s effectively earning. From a national insurance point of view, that reimbursement should have gone on payroll for Class 1 and go onto the P11D for tax.”
She continued: “These are the things you only discover at this time of year. [If you] haven’t done the NI, this is the sort of thing you need to catch up with as it happens and have policies in place that spot things that are Class 1 oriented, not Class 1A sections on the P11D.”
P11D issues with Covid-19
The main course for the 45minute webinar was an array of virus-related concessions and expenses exemptions, starting with working from home and company equipment.
Most employees and employees are unlikely to have too many worries thanks to the P11D exemption for office supplies. “The exemption will cover off those things. You provide them with desks and computers in the workplace. The same exemption applies now because you want them to work from home,” she said.
But if the employer bought the equipment for the employee to take home and then decided they didn’t want to have to deal with lots of secondhand kit when they came back, that would become a P11D issue. “If it becomes theirs, that is a transfer of assets and you’ll need to value it [as a reportable benefit],” she advised.
It took a few weeks of homeworking before HMRC relaxed its stance on employees buying their own equipment and getting paid back. This was the same situation as the carpet purchase and taxable reimbursement described previously. However, there was relaxation introduced from 16 March that allowed for equipment reimbursements to apply without tax and NI being an issue.
Working from home costs
Many employers will be unfamiliar with the working from home allowance, because until the crisis their employees were not used to working from home. But now this has become the norm, the allowance is very useful, particularly if home-working is going to become a regular arrangement.
At the moment, HMRC’s stance is fairly relaxed as long has you have a “working from home” arrangement with some permanence in place. Even if someone is not every Friday at home, employers can give £4 [a week] tax- and NI-free for 2019/20, rising to £6 for 2020/21.
Intended to cover all the minor expenses incurred when from working from home the weekly scale rate doesn’t need to be receipted or prorated, because it’s a small amount of money, Upcraft explained. If employers don’t want to pay the allowance, employees can claim it direct from HMRC.
If the employer does not want to claim the flat rate, then actual figures will need to be required for heating, lighting, metered water, business phone calls and other expenses.
Broadband is not covered as a separate working from home expense and claims are likely to be an “easy win” for HMRC, she warned. “The vast majority of employees have broadband, so there is no extra cost. That’s what the home working allow can cover.” Home net access is likely to be satisfactory for most home-workers, so employers shouldn’t be claiming and employers shouldn’t be paying for broadband unless there is need to have more expensive access – such as for a gaming developer.
Mobile phones are less problematic, as there is a total exemption for using company mobiles for personal use. “It’s not an issue,” said Upcraft. For those who have personal landlines and use them for calls, the company should not be paying because it’s a mixed-use benefit – so there would need to be an apportionment. “It’s better for people to use [company] mobiles when based at home,” she concluded.
Salary advances and loans
Employers looking to help employees cope with hardship and cash problems during lockdown should be aware of the differences between making advances on salary payments as opposed to loans, Upcraft warned. If making a salary advance, he employer will need to make an RTI submission because it’s a payment of salary, she explained.
There is a £10,000 benefit in kind exemption in place, so unless someone has a very big season ticket loan in place, a loan is much better way to advance them money without triggering any problems with P11D reporting. “It’s much safer to call them and have paperwork to demonstrate they’re loans, because you get much more flexibility. A loan is not an advance and doesn’t’ need reporting immediately,” she said.
Upcraft also reminded viewers that employers cannot reimburse their employee’s childcare costs. The only way it’s exempt is if it’s an employer-provided or supported scheme and those arrangements needed to be in place by 4 October 2018 to qualify.
Most of the travel arrangements in place before the lockdown remain in place. So people taking taxis to work is still normal commuting and a benefit in kind if paid by the employer. Any arrangements of that kind should be included in a PSA because if it is not something agreed with employees, it’s a taxable benefit.
Keep an eye out for employees taking advantage of the late night taxi exemption during lockdown. “That’s the only exemption that allows you to provide taxis,” Upcraft said. “If it’s simply that they didn’t want to go on public transport, don’t just play fast and loose with late night exemption, because that’s an easy win for HMRC.” The rules were created to deal with situations where it wasn’t possible for people to take public transport home. They are very strict on the time and irregularity and cannot be claimed more than 60 times in a tax year. Read the relevant section of the Employment Income Manual if you need to check what the criteria are, she advised.
Car usage during lockdown
Sadly for many company car users and fleet operators, vehicles that have been rusting quietly in the front drive for the past three months still represent reportable benefits in kind.
“It’s not about whether you didn’t drive, the fact is that it’s in your drive and available to use,” Upcraft said. The only comment HMRC has made about P11D reporting on company cars is that the only acceptable situation for a company car not to be a benefit in kind is if the keys have been returned and the contract cancelled. If contract hasn’t been cancelled, the employee will have to wait 30 days before that benefit ceases.
If cars are hired during the lockdown, it’s still a company car if the employer provided it. “Don’t just think you can call it a pool car,” she added. “There are very strict rules – it has to be used by more than one person and you’ve got [to have] records.”
Catering and health issues
There are some useful exemptions around catering and medical expenses if employers want to bring people back to work. For example the catering exemption could be useful for staff who usually might go out to buy food, but now can’t because the sandwich shops have all closed down. You can feed everyone or provide vouchers get food as long do so on a similar basis – including homeworkers, who meet the exemption too.
There is also a £500 “fit to work” exemption for people who need help with mental and physical issues when they come back to work. The exemption allows employers to spend up to £500 per person per year on interventions for mental or physical condition if they will bring the employee back into the workplace more quickly. During March, the provisions were expanded to cover employer assistance programmes that can now include welfare counselling.
Welcome to the ever-changing world of employee benefits. Even in normal years, the shifting provisions can be difficult to keep up with. Even with the best intentions, the complexity of benefit in kind rules has ballooned this year, causing more stress for finance teams and payroll managers.
The profession is lucky to have experts such as Kate Upcraft and her peers to track all the issues. If you are in danger of suffering P11D meltdown this summer, spending 45mins in Kate’s company will help dispel some of your worst fears.