Completing P11Ds can be a considerable headache and requires much liaison, says Kate Donovan
Tax is rarely the most riveting or straightforward of subjects, but, with HM Revenue & Customs (HMRC) expected to clamp down more heavily on employers for delivering incorrect P11D forms, there are financial benefits to getting it right.
A P11D is a report of the cash equivalent of the expenses and benefits provided to each employee earning £8,500 a year or more.
The maximum penalty for an incorrect return is £3,000 per form, although HMRC has historically failed to impose such high levies. However, accountancy experts expect it to start imposing heavier penalties. Shawn Healy, employment tax director at BDO Stoy Hayward, says: “If you miss a benefit off 100 P11Ds, it can be a very expensive error.” The deadline, 6 July, for filing P11D forms with HMRC should be a key date for every employer’s diary. Failing to submit a P11D within the time limit will incur a penalty of up to £300 and a further charge of up to £60 for each day the form remains outstanding.
Completing a P11D can be a complex process. The typical expenses and benefits which must be reported include: living accommodation, cars and car fuel, interest-free and low-interest loans, private medical insurance, relocation expenses and mileage allowance payments, among others.
Alastair Kendrick, tax partner at Wilder Coe, says: “P11Ds should report all the expenses paid to an employee and any benefits in kind that have been provided, unless there is a statutory provision which says it doesn’t have to be reported.”
Benefits in kind which can be classified as minor items, are made available on an irregular basis or which are impracticable to include on P11D forms because the precise value is hard to quantify can instead be covered by a pay-as-you-earn settlement agreement (PSA). This is a voluntary agreement between an employer and their local HMRC officer that the company will meet the tax payable on the benefits in kind provided to its employees.
Examples of such perks include taxi fares, a holiday awarded as part of an incentive scheme or a staff party that falls outside of the limited employee entertaining concessions, where it is perhaps hard to quantify who had what on a restaurant bill, or which employees attended.
Employers can also apply for a dispensation on expenses and benefits where HMRC is satisfied that no tax would be payable by staff. It is vital these are secured before P11D forms are completed and are kept up to date.
Alison Haynes, partner in the employment tax consulting group at Deloitte, says: “The technical term for dispensations is a notice of no liability, so an employer should not be able to get a dispensation against reporting something on a P11D which could give rise to a taxable benefit. However, it’s a really good idea to get exemption from everything you can get a dispensation from, because P11Ds are really onerous and there’s a huge amount of information to put on there. For an employer to only have to report the things which give rise to a taxable benefit is the most expeditious thing.”
Gathering the information to report under P11D, however, can be problematic, often due to poor communication and failure to sufficiently record employees’ expenses. For instance, Haynes explains that HMRC often picks up on the underreporting of fuel. “Even an honest employee can start off doing a business trip, say from London to Manchester. They put down 148 miles, and over time, that becomes 150. They round it up or they do a different journey and the roundings become less accurate if they’re not challenged,” she says.
Who should be responsible for a company’s P11D reporting will depend on its structure. Haynes suggests representatives should be involved from HR for their benefits knowledge and from finance to deal with the forms and tax issue.
P11D: THE FACTS
- The deadline for filing P11D forms with HMRC is 6 July.
- Employees must be given a copy of the submitted P11D by 6 July.
- HMRC is expected to impose stiffer penalties issued for incorrect P11D forms.