It is very important that the appropriate form is chosen:

• The P11D must be completed for company Directors and Employees earning £8,500 or more a year - form P11D.

• The form P9D must be completed for Employees earning less than £8,500.

• Once the P11D and or P9D forms are completed the form P11D(b) must be completed and used to calculate the 12.8% Class 1A NICs due on all the taxable expenses and benefits.

All of these forms must be submitted to HM Revenue & Customs by 6 July and the payment of the Class 1A NICs declared on form P11D(b) must then reach HMRC by 22 July, or by 19 July if you pay by cheque.

For the purposes of this article I will look at the form P11D.

Benefits and Expenses

Even though there are a plethora of benefits and expenses that must be declared I have discussed the main ones below:

Company Car

The provision of a company car for the sole purpose of one employee is a taxable benefit. The benefit is based on the CO2 emissions of the car. The more pollutant the car the higher the benefit in kind. A diesel car is taxed more heavily than a petrol car.

Car Fuel

If the company provides fuel for a non pool car then potentially a fuel benefit will arise unless the fuel was solely used for business travel or the director /employee makes good the whole fuel cost used for private journeys. In either case the employee/director must keep travel logs to justify any position taken.

Vans

A van with unrestricted private use has a flat rate benefit of £3,000. If the van is shared between employees then the cash equivalent is split based on days used. If free or subsidies fuel is provided for private use the employee will also incur a £500 benefit in kind.

Mileage allowance

If an employee/director uses his own car for business purposes then he can only be reimbursed 40p for the first 10,000 and 25p thereafter.

Mobile telephone / Telephones

If an employee is provided with a mobile phone a taxable benefit in kind does not arise. If however the employee is given more than one mobile phone or the company pays the employees mobile or telephone costs where the contract is between the employee and the phone company then the non-business calls and line rental will be a taxable benefit in kind.

Travel and subsistence and Entertaining expenses

If such expenses have been incurred, then the cost, the purpose of the cost needs to be recorded and then the total needs to be shown on the P11D form. Of the costs incurred a claim can be made for the business element, which will ensure that this is not taxed.

Interest free or low interest loans

If your employer has given you an interest free loan or a low interest loan then this will need to be reflected on the P11D. HMRC’s rates of interest change through the year which is why when preparing the P11D either the benefit in kind is calculated using the average rate or the benefit in kind can be calculated based on the actual rates.

Christmas Party and Annual Events

As long as the cost of such events does not exceed £150 per head through out the tax year then there will be no taxable benefit. If the expense exceeds this limit a taxable benefit will arise.

Penalties

If the forms are not submitted by the due date, the HMRC can charge two different penalties:

• For each form, there is an initial penalty of up to £300, plus up to £60 a day if the failure continues.

• An automatic penalty of £100 per 50 employees for each month the failure continues in respect of not making a return of Class 1A NIC.

Failure to complete a correct P11D can also incur a maximum penalty of £3,000 for each fraudulently or negligently prepared return

Reducing the Administrative Burden

The preparation of the P11D forms are a significant administrative burden. However this burden can be reduced if the business gets a PAYE settlements agreement (PSA) with HMRC. A PSA scheme is used to settle PAYE (Pay As You Earn) tax and National Insurance contributions (NICs) due.

Summary

The secret to preparing P11D forms is good record keeping. Should HMRC ever enquire, you should be able to explain why your employee took a journey in a car or why certain employees went abroad …etc. You should also do your best to get dispensations where possible as items covered by dispensations do not need to be declared on the forms there by reducing the chance that your company will submit an incorrect P11D which potentially is liable to £3000 fine.

To get a dispensation a P11DX form must be completed. There is also no need to pay any tax or NICs on items covered by a dispensation

HMRC are more likely to give a dispensation if there is an independent system in place for checking and authorising expenses claims. At a minimum, this means having someone other than the employee claiming the expenses check that they are correct.

Jasbinder Bahara, of Silver Levene provided research for this article.

Disclaimer

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene (Incorporating Modiplus+). He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk