P11D – Return of Benefits and Expenses

Are you prepared?
The completion of the annual P11D’s is a laborious task, fraught with pitfalls to trap the unwary and not at all helped by the tight deadline to submit the forms to H M Revenue & Customs (HMRC) before 6 July following the end of the tax year.

At Francis Clark Tax Consultancy we can take the uncertainty out of the process of completing the P11D’s and also alleviate the need to complete unnecessary forms where a dispensation from HMRC can be applied for. This can save large amounts of time in completing forms where expenses have been reimbursed to employees, or where company credit cards are provided,

Another issue is collating the information from the client in the first place. This is often because the accounts year end for the client does not end until after the P11D submission deadline, or there has simply been not enough time to complete the accounts before the deadline. You therefore need to liaise with the client to find out whether it is necessary to prepare P11D’s for them.

We can offer a simple, yet comprehensive, step-by-step questionnaire that the client can go through which lists the majority of the more common taxable benefits received by an employee, as well as those that either you, or the client, may not have realised constitute a taxable benefit. We can then review the questionnaire and advise whether P11d’s are due and if so, whether any action can be taken to avoid having to complete P11D’s in the future.

Our service can also be extended to the production and submission of the P11D(b) Employers Declaration and P11D’s for you or your clients.

With the increase in HMRC PAYE Compliance visits, the non-completion of P11D’s and subsequent failure to pay tax and Class 1A National Insurance Contributions on the provision of taxable benefits to employees can yield large settlements, due to the length of time HMRC can go back and assess taxable benefits which have not been returned. It is therefore more important to ensure that any non-compliance with the return of taxable benefits is addressed sooner rather than later.

Form P11D and P9D
An employer is obliged to complete a form for directors and relevant employees in respect of expenses and benefits made to them. Relevant employees are those whose total pay, including benefits, is £8,500 or more per annum.

Each form P11D should contain details of all expense payments and taxable benefits provided to the employee, unless a dispensation is in place for certain types of business expenditure reimbursed to an employee.

A form P9Dis to be used to show taxable benefits and expense payments for those employees earning less than £8,500 per annum.

P11D(b) Employers Declaration
The Return of Class 1A NIC (form P11D(b) Employer’s Declaration) must be submitted to HMRC by 6 July 2010. Any Class 1A NIC due has to be paid to HMRC by 19 July 2010

When the forms P11D have been completed, the entries made will be the information needed to complete form P11D(b) Employer’s Declaration.

Payment of the Class 1A NICs should be made using the special payslip which will accompany the P11D(b) Employer’s Declaration.

What if a form is late or incorrect?
An employer who fails to make a return on a form P11D within the appropriate time limit will incur a penalty not exceeding £300 per P11D with a further penalty of up to £60 per additional day of lateness. In addition, and perhaps even more worrying, is the penalty of £3000 for an employer that makes an incorrect return on form P11D.

Does it stop there?
No it doesn’t as most benefits returned on form P11D will also attract a liability for Class 1A National Insurance Contributions. These will require the completion and return of form P11D(b) and failure to return, a late return or an incorrect return will result in a penalty of £100 per month of lateness.

If the return is over a year late then the penalty could be as much as the amount of Class 1A NIC actually due. Incorrect returns where HMRC consider there to have been negligence or possible fraud on behalf of the employer can create a penalty equal to the difference between the Class 1A NIC paid and the Class 1A NIC due.

H M Revenue & Customs PAYE Compliance Reviews

From 2009/10 onwards, HMRC PAYE Compliance activities have been looking to achieve settlements of at least £15,000 per review. This is an increase on previous years and will be achieved at all costs in line with the current mentality of HMRC policy makers.

To meet this target HMRC have been using a vast array of information available to them to decide where there may have been a PAYE failure and more worryingly what risk the employer represents to HMRC. They are prepared to trawl through old PAYE and Tax returns as well as P11D’s, Accounts and payment histories just to consider whether a risk exists. These risks will be used to select which employer will be chosen to be the subject of a review which will be both intrusive and potentially expensive to your client.

The current climate within HMRC clearly shows that there will be a dramatic increase in the issue of penalty notices where employers are deemed to have failed in their statutory obligations to complete benefit returns correctly. Furthermore, where an employer (or Agent) fails to provide information to the PAYE investigator then determinations will now follow as a matter of course with the obvious threat of un-realistic amounts claimed and potential expensive attendance at Commissioners hearings.

Key areas of PAYE and benefits failure remain car fuel benefits where fuel supplied by the employer cannot be shown to the satisfaction of HMRC to have been used for business journeys only. The resultant charge in both Tax and NIC can run into thousands particularly when you consider that HMRC are required to go back at least 6 years in their assessments. Pooled cars and use of employer owned vans for unrestricted private use, are another favourite area of failure and HMRC will look for poor or missing records of pool car and van users and overnight parking arrangements to secure a taxable benefit on the provision of these vehicles.

Employment status of workers continues to prove a lucrative settlement area and the introduction of a new HMRC computer system has indicated that your clients can expect continued attacks on their genuinely self-employed workers.

It has also been seen recently that HMRC will ‘offer’ as part of the settlement the ability for the employer to pay the tax due on the employee’s behalf where an incorrect P11D was made, in lieu of charging individual penalties for the incorrect P11D. This is on top of the Class 1a NIC liability already due and can make the overall settlement of the Compliance Review even more expensive for the client.

We can offer to undertake a PAYE/Benefits health check of your client's business. Any problem areas can be identified and remedial work undertaken, potentially saving your client thousands in settlement.

Make sure that you are aware of any potential P11D traps that catch the unwary.