You may not have provided any really flashy benefits to anyone on the payroll in the last year – but that doesn’t mean you don’t have to send returns to HMRC by 6th July. If you don’t have a dispensation that includes travelling and subsistence expenses! Emma Potter takes us through what’s needed:
1. It’s essential that you keep records of any expenses and benefits provided to employees. You’ll need these records to complete forms P11D, P9D and P11D(b) accurately at the end of the tax year, ensuring that directors and employees pay the correct amount of PAYE tax and National Insurance contributions (NICs).
These records need to be retained in case HMRC have any questions about how you’ve accounted for the expenses and benefits provided . Records must enable you to demonstrate that your end of year expenses and benefits returns – forms P11D, P9D and P11D(b) – are accurate.
2. Record the date and details of every benefit and expenses payment, retaining any documentation relating to them. It is a good idea to keep your records on an ‘employee by employee’ basis as this is the way most forms will be completed. You will also need to record any PAYE or Class1 NIC’s payable, on the expenses/benefits provided, on the employee’s payroll record.
Keep a record of any payments made by the employee, contributing to the cost of the expense or benefit provided to them.
These records need to be kept for three complete tax years after the end of the tax year to which they relate.
3. It’s important to choose correctly between forms P11D and P9D for each employee/director. The form to use depends on the employee’s earnings and on whether they’re a director of the company:
- Use form P11D to report expenses and benefits provided to an employee earning at a rate of £8,500 or more per year.
- Use form P9D to report expenses and benefits provided to employees earning at a rate of less than £8,500 per year.
- Use form P11D for almost all company directors. Only use form P9D if all of the following apply a. they earn at a rate of less than £8,500 per year b. they have no material interest in the company c. they are either a full-time working director or a director of a charity or non-profit organisation
As well as earnings the £8,500 threshold includes the value of expenses and benefits provided to the employee, other than contributions to a registered occupational pension or approved payroll giving scheme.
The £8500 limit operates on a pro-rata basis for anyone working part-time or in employment for only part of a year.
You also need to include any expenses, benefits or facilities provided to the family or household of the director or employee.
4. All the forms are downloadable from the HMRC website along with guides for completion and an A-Z list of expenses and benefits.
http://www.hmrc.gov.uk/guidance/p11dguide.pdf P11D Guidance
http://www.hmrc.gov.uk/paye/exb/a-z/a/ A-Z list of expenses and benefits
5. When completing the P9D and P11D, you must enter the total amount of all expenses paid and full value of benefits provided, into the relevant category and section on the form .
Report any sums the employee has paid to make good the cost of expenses or benefits provided by the company, along with any tax you’ve deducted through payroll on the value of the expenses or benefits.
Staff can claim a tax deduction where expenses were claimed wholly, exclusively and necessarily in the performance of the employment duties.
6. Every P11D must include :
- the employer reference
- the employees name
- the employees NI number or date of birth and gender
- the list price for the company car if you’re reporting one.
- if you complete the ‘total cash equivalent of car fuel provided’ in section F, the ‘total cash equivalent of cars provided’ in box 9
- if you provide a beneficial loan to an employee you’re reporting in section H, the ‘cash equivalent of loans’ in box 15
7. The following are common errors and making sure these points are covered helps avoid rejections or delays in HMRC processing the forms
- 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 descriptions of amounts included in sections A, B, L, M or N of the form.
- Leaving the ‘cash equivalent’ box empty if you’ve entered a figure in the corresponding ‘cost’ box of a section.
- Sending P11Ds when you’ve stated on your final submission for the tax year that P11Ds are not due.
- Only entering the value of the private-use portion of a benefit provided for mixed business and private use, instead of the full value.
- Not completing the fuel benefit where this applies.
- Completing the ‘to’ or ‘from’ car availability dates when they don’t need to be completed because the car was available in the previous tax year or is available in the next tax year, respectively.
8. Employees still working for an employer on the last day of the relevant tax year ( 5th April ) must receive a copy or equivalent P11D details.
Former employees requesting a copy of their P11D, who left within the tax year, must have one provided by the 6th July or 30 days after receiving the request which ever is later.
9. You must complete and file a form P11D(b) if either of the following applies:
- You have one or more P11Ds to submit to HMRC at the end of the tax year.
- HMRC has sent a form P11D(b) to you ; if this occurs and you have no P11Ds to submit, tick the box in section 2 that says no P11Ds are due for the year and submit to HMRC or telephone HMRC’s Employer Helpline to advise that no P11Ds are due
Form P11D(b) isn’t completed on an employee by employee basis. You use it to declare the total Class 1A NICs that you owe in respect of all your employees.
There are no specific records to keep in support of your P11D(b), other than the forms P11D you’ve used to record individual employees’ expenses and benefits.
There are four key things that you must do on form P11D(b).
- Enter the total value of the expenses and benefits provided during the tax year that were liable to Class 1A NICs ( this is calculated using the figures you entered in the P11D’s and if using electronic methods will be automatically calculated).
- Make any necessary adjustments to this total ie. if it includes items that aren’t liable to Class 1A NICs .
- Work out your Class 1A NICs liability for the year. This is calculated as a percentage of the (adjusted) total value of your expenses and benefits from the first two steps above. The percentage rate will be on the P11D(b).
- Declare which of the following applies : a. during the tax year you didn’t provide any expenses and benefits that must be reported on form P11D b. you did provide P11D expenses and benefits and you’re submitting your forms P11D at the same time as your P11D(b) c. you did provide P11D expenses and benefits and you have already filed your forms P11D
Forms P11D, P9D and P11D(b) must reach HMRC by 6 July following the end of the tax year.
Penalties for the late or incorrect filing of P11D forms is discretionary, there is no automatic penalty provision as with other PAYE returns. For each incorrect return the employer may incur a penalty of up to a maximum of £3000.
Your payment of the Class 1A NICs declared on form P11D(b) must reach HMRC by 22 July, or by 19 July if you pay by cheque.
10. HMRC can be applied to in order to obtain various agreements which reduce the reporting requirements for certain benefits and expenses.
- Dispensation ( technically Notice of Nil Liability) from HMRC for wholly business expenses so that you don’t need to record them on the P11D. To do so the employer has to prove to HMRC that their authorisation procedures for signing expense claims are adequate. It is worth applying for this as it can dramatically reduce your reporting for next year.
- PAYE Settlement Agreements (PSAs) allow employers to pay tax for their staff members. These arrangements do not save any tax, the company bears this on a grossed-up basis. But they do take the benefits off P11Ds. PSAs have to be obtained annually but the deadline is generous – 6 July following the end of the relevant tax year.
- Trivial benefits – these must be agreed with HMRC in advance of their application. This is important, as otherwise, the relevant benefits must still be recorded and employees will face an unnecessary tax liability.
These have to be in place before you are able to reduce the reporting accordingly.