RSS feedsBenefits and expenses are a tricky area for almost all businesses and their employees: nobody wants to get their P11D form wrong, or file late, because this can have an adverse effect on income tax bills or result in fines. But ensuring the forms are completed correctly and submitted on time can be a complex and time-consuming process and it affects companies of all shapes and sizes.
Employers are required to submit forms P11D to HM Revenue & Customs by 6 July, with details of benefits and expenses provided to employees, together with form P11D(b) return of class 1A national insurance contributions.
Any employer that fails to do so is liable to a penalty of £100 per month, and the penalty is increased by £100 for every batch of 50 employees for whom a P11D was received for the year prior to the return year.
Failure to properly record reimbursed expenses and private use of company assets on a P11D can also leave the employer with a higher income tax bill than necessary. Get it wrong and the taxable sum will be grossed up. This can be as much as 66 pence in every pound, rather than nothing if the item was properly recorded for the employee, who would pay a maximum of 40 pence in the pound. File an incorrect return and you could face a fine of £3,000 so the cost of failure can soon mount up.
Employers must submit to the an annual P11D form for each and every employee earning more than £8,500 and receiving qualifying expenses or benefits in kind. There are many benefits that are not liable for tax, even when employees are within the P11D category and that makes them particularly attractive to employees who are paying the higher rate of income tax.
These include contributions to registered pension schemes, child care facilities, use of a pool car, approved share incentive plans and removal expenses (subject to HMRC limits). But there are also many benefits that are liable for tax.
‘This could be private medical or dental insurance, a company car, certain relocation and accommodation expenses and interest-free loans,’ says Louise Mitchell, director of precise payroll.
‘Remember that benefits provided to employees’ families should also be taken into consideration,’ she adds.
Not for the faint-hearted
Navigating the complexities of the UK tax system is not for the faint-hearted.
Small employers may know all about their business, but they tend to be
significantly less knowledgeable when it comes to calculating tax liabilities
and completing a P11D form correctly.
Larger employers with more in-house resources will have the advantage of staff with the necessary technical knowledge.
Any organisation still using paper-based systems is probably making the
process unnecessarily complicated and error prone. Specialist software can
take a lot of the pain away, removing the need to complete manual worksheets and
helping you with completion of forms P11D, P9D and P11D(b) to the satisfaction
of HMRC.
This can speed up and simplify the associated recording and reporting processes,
whether you have one, 100 or 1,000 PAYE employees. It can also reduce the
potential for error because the knowledge of tax experts is built in.
Software can also improve the safety and security of the process, making it easier to manage related information for employees and helping to enforce good working practices. Essential details can also be easily made available to staff if, and when, they have to complete self-assessment tax returns.
Because of the expertise built into the software, you can also be sure that you have completed any mandatory fields on the forms and automated rules mean that calculations are always made in keeping with HMRC regulations.
This could go a long way towards providing peace of mind if you are ever the subject of a HMRC audit or spot check.
But there is a lot of choice out there and finding the right approach for any business will depend on myriad factors.
Some applications are designed with the small business in mind, while others offer the sort of scalability that means they would be as much help to a business with five staff as one with 500, though systems aimed at larger organisations tend to have extra layers of complexity and carry a big business price tag. Different software suppliers also go about providing P11D functionality in a variety of ways, from within a number of applications.
Some accounting systems, such as Liberty, will record P11D data for you, even if they don’t produce the P11D form, so it’s always worth checking what the software covers. You may be wasting time using a paper-based system to record P11D information when you already have a software application to do this.
Design specific
Some accounting applications, such as Pegasus Opera, offer P11D capabilities in
an optional add-on module. A similar situation exists with payroll packages.
Moneysoft, for instance, has P11D capabilities built in, while Keytime and
TeamSpirit have P11D add-ons that sit on top of the payroll software.
Dedicated P11D packages are also available from as little as £49 from suppliers such as Iris, Sage, PKF and Taxshield, while web-based systems, such as Web Expenses from Signifo and ExpenseWorld from eXml, enable you to automate the entire expense management process (including P11D production) from £6 per user, per month, so even the smallest organisation can afford software support.
‘It costs less to use software than to do it yourself or pay someone else to
handle the process,’ says George McHamish, managing director of Moneysoft.
Bridgette Smith, who uses Moneysoft Payroll Manager to help her run the
Westfield Day Nursery, is equally enthusiastic. ‘I can’t understand why anyone
would do their P11Ds manually when they could automate it,’ she says. It takes
her seconds to handle the entire process for herself and her 30 employees.
Because Moneysoft Payroll Manager is used all year round to handle staff
remuneration, all of the necessary information is already stored by the system.
‘All I have to do is ask for P11D, then hit a few keys, and the forms are
completed and filed with the HMRC,’ says Smith.
Not all of the applications that can be used to produce P11D forms enable users to file their returns online, but it is increasingly the case, and where it isn’t, it is only a matter of time.
Businesses that already use software for accounting and payroll may find it easier to manage P11D compliance; but even if you have been using spreadsheets to collect expenses information during the year, information can easily transferred into a P11D package as long as you opt for one that accepts input in the .csv format produced by spreadsheet packages. Some P11D packages will import data from spreadsheets plus a variety of back office systems, including accounting and payroll applications. PKF P11D will even validate it for common errors and inconsistencies before the final reports are produced. What more could you ask for?
Preventing P11D problems
• Be prepared - HM Revenue & Customs can raise queries or do a random spot
check long after a P11D submission has been made, so businesses need to have
quick and easy access to the necessary background records.
• Educate employees - Make sure staff are declaring private use of company vehicles, including vans.
• Review hotel bills - Pay attention to personal incidental expenses, such as newspapers, telephone calls home, mini-bar bills charges they’re all taxable.
• Think about fuel - Differentiate carefully between business and personal travel.
• Plan ahead - Keep employees informed of deadlines, timelines and any documentation or information they need.
• Check dispensation - If HMRC has granted the business a dispensation so that routine expense payments and benefits that would not give rise to a tax liability need not be reported on forms P11D, this must be strictly adhered to. Review this, though, as it is not always applicable year on year.
• Remember expenses - These must be disclosed on forms P11D.
• Add VAT - It should be included in the amounts reported for expenses on form P11D.
• Get help if you need it - Seek professional advice for complex or uncertain areas
Lesley Meall writes on SME technology matters for Best
Practice every month
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www.hmrc.gov.uk/forms/p11d.pdf
