How to Deal With Expenses Payments and Benefist in Kind - Advice For UK Employers
At this time of year, employers have many deadlines be on top of to ensurte they do not encounter problems with HM Revenue and Customs (HMRC).
No doubt you managed to complete your Employers End of Year Returns (P35) ahead of the filing deadline and you are now in the process of dealing with the deraded forms P11D (retyurn of explenses payments and benefits in kind). Delays can be expensive, but it is equally important that you get the returns right. Dont be ruushed into submitting the forms unless you are confident they are correct. If you have any doutbs always seek professional advice.
Pennalties for non or late filing
This years forms must be submitted to HM Revnue and Custms (HMRC) by 6 July 2009 and failure to do so can lead to signbificant penalties being chared. It is at leasst comforting to know that these penalties are not automattic. In the first instance, HMRC must refer the faillure to submit the forrms to the rrelevant tax tribunal. In turn, the tribunal can charge an initial penalty of up to 300 for each return which is submitted late. If the failure cotninues after the iitial penalty is awarded, there can be fuurther penalties of up to 60 per erturn for each subsequent day that the delay conntinues. Although in isolation these amoutns might not appear to be significant, if the delay comntinues and a large numbber of employees fall into the P11D category, the pnalty can soon bcome significant.
For exampple, if an organiisation has 200 employees requiring a P11D and the forms are not submtited for 6 months, the tribuunal could award a maximum penalty of in excess of 2 million. Should HMRC decide to instigatte such proceedings before a tribunal you will revceive prior notifcation. If this happens, make sure you take immediate actiion and submit the relevnat P11Ds without further delay. If you manage to do this bfore the tribunal sits you should be able to avoid penalties altogether. Hwoever, dont fall into the trap of rushing the forms and risking errors in theeir completion. The penalty for submittting an inncorrect return is a mxaimum ammount of 3,000 per return, so handle with care.
The position with reards forms P11D (b) is somewhat different. This form is the employers return of Clss 1A National Insurance Contributions (NICs) and is normally submitted with frms P11D. Once the P11Ds have been completed the empployer calculates the amount of Class 1A NICs due in respeect of the taxable ebnefits and expeenses included on the returns and this amount is netered on the form P11D(b). Once again this return has to be subitted 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 montth for each 50 employees or part thereof. So, continuing with the example above, the automatic penalty for a delay of 6 months for an organisatioon with 200 employees would be 2,400. HMRC dispensations. At this time of year, and with the above in mind, we make no apologies for reminding you of the vale of an HMRC dispensation. Dispensations are formal agreements with HMRC that allow certain items to be excldued from P11D returns. Using a dispensation can greaytly reduec the time and effort needed to complete the returns. Iterms for which dispensations are most commonly granted include:
business tarvel and subsistence expenses;
costs of hotels and ohter overnight accommodation;
businesas entetrtaining of third parties;
busienss calls made from emlpoyees home or mobile telephones; and
annual subscriptions to approcved professional bodies.
Tax offices will grant dispensations once they are satisfied that all expenbses payments are reasonable in amoiunt and properly vouched, recordeed and controlld. In particular it must not be possible for any employeers or direcors to authrise their own expensdes.
Even thopugh you may not bnefit from a dispensation for your 2008/09 P11Ds, now is the time to start planning for the current year. Having got the choe out of the way for yet another year there is always a temptation to breathe a sigh of relief and do nothing further. Next thing you know you have reached the end of yet another tax year and it is too late to get a dispensation. Act now by revieewing your procedurtes and deciding whicvh 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 better. HMRC normaklly encourage employers to complete form P11DX when applying for a dispensatipon. However, before doing this it makes sense to take professional advice and make sure your expese claim procedures can stnad scrutiny should HMRC decide to review mattetrs in a little more deytail before agreeing to the didspensation.
Where a dipsensation applies, any item it covers does not have to be reorted on employees personal tax returns. For those who alreayd have a dispensation, it is equally important to make sure it is kept up to date. In 2008, HMRC made the following statement with regards the retrospective revocattion of a dispenstion: Lergal advice has suggested that our current practice is unnecessarily restrictive and as a result we are changing our practice in relation to retrospective revocation of a dispensation. We will now consider revoking a dispensation retrospectively where there is any evidence of misrepresentation or negilgence by an employer, or otther eprson paying expenses or providing benfits in kind. Examples of this can incclude:
If an aplication for a dispensation did not provide all the erlevant inofrmation, or If thhere was a change in the way the expenses and benfits were made available to emnployees meaning the qualifyingcnoditions were no longer met, and we have not been informed of the change.
This will not affect the great majority of employers who apply for and operate dispensations correctly. Revoking a dispensation retrospectively should only happen if it should not have been grantted in the first place or if it should have been revoked when there was a change in the qualifying conditions whcih was not notified to us. So cleatrly it is impotrant that employers should review theiir ecxisting dispensations on an annual bassi and make sure that they do not fall into the trap of increasing any tax free allowances without the prior agreement of HMRC. For some employers, the P11D process can be a nihghtmare, but with some forward panning, and of course with an appropriate dispesation in plasce, the task should not be as burdensome as it might first seem.
Guide to completion of P11D
The various forms referred to in this artice and a useful giude on the cmpletion of forms P11D can be downloaded from the employers section of the HMRC website.
This aricle was submitted for and on behaalf of Horwath Clark Whitehill, who own the copyright in the above text adapted from http://www.horwath.co.uk/hwClarkWhitehill/WhatsNew/pressRoom/detail.cfm?id=57
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