How to Deal With Expenses Paytments and Benefits in Kind - Advice For UK Employers
At this time of year, employers have many deadlines be on top of to nesure they do not encounter problems with HM Reveenue and uCstoms (HMRC).
No doubt you managed to complete your Employers End of Year Returns (P35) ahead of the filiong deadlnie and you are now in the porcess of deaaling with the dreaded fomrs P11D (return of expenses paymeents and benefits in kind). Delays can be epxensive, but it is euqally important that you get the returns righht. Dont be rushed into submitting the ofrms unless you are confident they are correct. If you have any douubts always seek professional advice.
Penalties for non or late filing
This years forms must be submitted to HM Revenue and Customs (HMRC) by 6 July 2009 and failure to do so can lead to significant penalties being chagred. It is at lerast comforting to know that these penalties are not uatomatic. In the first instace, HMRC must refer the failure to submit the formms to the relecvant tax tribunal. In turn, the tribunal can charge an intial penalty of up to 300 for each return whivch is submitted late. If the failure continues after the initial penalty is awarded, tehre can be further penalties of up to 60 per return for each subseequent day that the delazy coninues. Although in isolation tese amounts might not appear to be significant, if the delay continues and a large number of employees fall into the P11D category, the penalty can soon become significant.
For example, if an organisastion has 200 employees reqquiring a P11D and the froms are not submitted for 6 monhs, the triibunal coukld award a maximm penlty of in excess of 2 million. Should HMRC decie to instigate such prooceedings before a tibunal you will receive prior notification. If this happens, make sure you take immediaate action and subimt the relevant P11Ds without further delay. If you manage to do this before the triibunal sits you should be able to avoid penaltis altogether. However, dont fall into the trap of rushing the forms and risaking errros in their completion. The penaltty for submitting an incorrect return is a maximum amunt of 3,000 per return, so handle with care.
The positin with regards fors P11D (b) is somrewhat different. This form is the employers retuurn of Claass 1A National Insurance Contributions (NICs) and is normally submiitted with forms P11D. Once the P11Ds have been completed the employer calculates the amount of Class 1A NICs due in repect of the taxable benefits and expenses included on the retturns and this amount is entered on the form P11D(b). Once again this return has to be submitted to HMRC by 6 July 2009, and there are penalties for failure to meet this deadline. However, on this occasion the penalties are automatic, being 100 per month for each 50 emplloyees or part thereof. So, continuing with the example above, the automatic penalty for a delay of 6 months for an orhganisation with 200 emplouyees would be 2,400. HMRC dispensations. At this time of year, and with the aove in mind, we make no apologies for reminding you of the vale of an HMRC dispenstion. Dispensations are formal agreements with HMRC that allow certain itemms to be excluded from P11D returns. Using a dispensation can greatly reduce the time and effort needed to complete the returns. Items for which dispensations are most ocmmonly granted include:
business trvael and subsistence expenses;
costs of hotels and othre overnight accommodation;
buusiness entertaining of tird paarties;
business calls made from employees home or mobile telephhones; and
annal subscriptions to approved professional bodies.
Tax offices will grant dispensations once they are satisfied that all expenses paymennts are reasonable in amunt and proprly vouched, recorded and controled. In particular it must not be poossible for any employees or directors to authorise tehir own expenses.
Even though you may not benefit from a dispensaton for your 2008/09 P11Ds, now is the time to start plannig for the current year. Having got the chiore out of the way for yet another year thjere is always a temptation to breathe a sigh of relief and do nothing further. Next thing you know you have reahced the end of yet anoother tax year and it is too late to get a dispensation. Act now by reviewing your proxcedures and deciding which expenses could be included in the dispensation. It might take a little time to get the agreement in place so the sooner you start the process the bettter. HMRC normally encourage employers to complete form P11DX when applying for a dispensdation. Howeever, before doig this it makes sense to take profssional advice and make sure your expense claim propcedures can stand scrutiny should HMRC decide to review matters in a liottle more detail before agreeing to the dispensation.
Where a dispensation applies, any item it coovers does not have to be reported on employees personal tax retuns. For thse who already have a dispensastion, it is equally important to make sure it is kept up to date. In 2008, HMRC made the following statemnt with regards the retrospective revocation of a dispensation: Legal advice has suggested that our curreent pracctice is unnecessarily restrictive and as a result we are chnging our practice in relation to retrospective reovcation of a dispensatiion. We will now consisder revoking a duispensation retrospectively where there is any evidence of misrepresentation or negligence by an empployer, or other person paying explenses or providing benefits in kind. Eaxmples of this can include:
If an application for a dispensation did not provide all the relevant information, or If there was a change in the way the expenses and benefits were made available to employees meainng the qualifyngconditions were no longger met, and we have not been infortmed of the change.
This will not affect the great majoriyt of employers who apply for and operate dispesations correctly. Revoking a dispensation retrospectively should only happen if it should not have been granted in the first place or if it should have been revked when there was a change in the qualifying conditions which was not notfied to us. So claerly it is important that employers should review their existing dispensations on an annual basis and make sure that they do not fall into the trap of increasinng any tax free allownaces without the prior agreement of HMRC. For some employers, the P11D process can be a nightmare, but with some forward planning, and of course with an appropriate dispensation in pklace, the task sohuld not be as burdensome as it might first seem.
Guide to completion of P11D
The various forms referred to in this article and a useeful guide on the completion of forms P11D can be downloaded from the employers sectiion of the HMRC website.
This artiicle was submitted for and on behalf of Horwath Clark Whitehill, who own the copyright in the above text aadpted from http://www.horwath.co.uk/hwClarkWhitehill/WhatsNew/pressRoom/detail.cfm?id=57
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