The P11D Why Who When What

11 March 2011

As the end of another tax year approaches, accountants will be starting to work on the end of year payroll return, the P35.

One of the questions on the P35 return is whether a P11D is due for submission.

Here, we look at what the P11D is and what should be declared on it.

Why do I need to file a P11D?

Under taxation law, some expense payments and benefits are treated as taxable remuneration. This may mean there is Class 1A National Insurance and tax to pay on them. These items are recorded and declared to HMRC on a P11D in order that the tax and NI resulting can be calculated and collected.

Who needs to file the P11D?

The obligation to record and declare these expenses and benefits fall on employees that earn in excess of £8,500 and all directors of owner managed businesses that trade for a profit.

Note that the P11D also extends to expense payments made to the employee by reason of their employment so this includes round sum allowances for travel and entertaining.

Any assets sold to employees at less than market value (e.g. company cars or computer equipment) are also caught as a benefit.

The employer will collate all of the information above and provide a P11D of these items to both their employees and on line to HMRC.

When is the P11D due?

The Employer: is required to submit a P11D detailing all expenses and benefits paid in the year to 05/04/11 to HMRC by the 6^th July. The employer must pay Class 1A at 12.8% on the value declared on the form.

The Employee: is required to enter these expenses and benefits received on their self assessment return and will pay tax at the rate of 20% 40% for higher rate tax payers.

What items should be declared on the P11D?

Here are some examples of items that are taxable (and therefore treated as part of the remuneration package):

1. Gymn membership/private medical insurance where this is paid for by the employer.

Expenses incurred personally by the employee/director and reimbursed by the company – if the cost is incurred wholly and exclusively for the business, the resulting benefit will be nil. However, the costs and reimbursement must still be declared.

Mobile Phone – payment of a personal contract through a business bank account. Tax and NI would be due on the amount of private use not reimbursed by the employee/director.

1. Lunches/Food  - food and drinks paid for by the company where this is not associated with travel and say an overnight business trip.
 
2. Company car – here the cost of the benefit is based on the list price (not the actual price) multiplied by a percentage which is determined by the level of CO2 emissions. The lowest tax charges will apply to those cars with CO2 emissions of less than 110g/km or that are hybrids etc

Exemptions

 There are, however, some expenses and benefits that are not normally taxable under the above provisions. Some of these are listed below:

1. Annual parties or similar functions

Annual parties at Christmas or the annual dinner dance which are open to all staff and which cost no more that £150 per head. Only the functions that total less than £150 per head are exempt. If a single function costs more than this per head, then the whole amount is taxable. 

1. Mobile telephones

Where the line rental and bills are paid directly by the employer, then the provision of a mobile provided to an employee is not taxable.

To truly escape the risk of the provision being viewed as a benefit, then strictly speaking:

1. The bill should be in the name of the company
2. The company should pay the bill directly.
3. Parking spaces

The provision of a parking space at or near the employee’s place of work is not taxable.

1. Relocation costs

Where employees change residence as a result of starting a new job or transfer within the employer’s organisation, then the first £8,000 of removal expenses that qualify will be exempt from tax. 

To qualify, the employee must change their main residence as a result of starting a new employment, changing duties, or changing the place where the duties are normally performed. There is no requirement for the old/former residence to be actually sold but the new residence must be within reasonable daily travelling distance of the new place of work. 

Similarly, the old residence must not be within reasonable travelling distance. 

The expenses and benefits which qualify for exemption providing the above criteria are met are:

1. Disposal of old residence – this includes legal fees, mortgage redemption penalties, estate agents fees
2. Acquisition of new residence – this includes legal fees, stamp duty, mortgage arrangement fees and legal expenses, Land Registry fees, utility connection fees
3. Transportation of belongings – this includes removal costs and temporary storage
4. Travelling and subsistence – this includes travelling between the old home and new work location, temporary living accommodation at the new location, and travelling between the two homes once the move takes place
5. Domestic goods for new residence – this is intended to cover the purchase of domestic goods to replace items used at the old home which are unsuitable for use in the new home
6. Bridging loans – this applies where a loan is required to bridge the gap between the date when the new property is acquired and the old one disposed of.
7. Professional Subscriptions

Annual subscriptions paid to certain approved professional bodies where they are relevant to the duties of employment can be claimed back on the self assessment tax return. The HMRC website has a list of the approved bodies. 

1. Travel
   1. To a temporary workplace although this is limited to a period of two years as the workplace is deemed to be a permanent one after that
   2. Travel for business purposes reimbursed at the agreed Mileage Allowance Payment of 40 pence per mile will not attract any tax. However, where the company pays rates in excess of this, a benefit has been made and will be taxable.
   3.  
2. Entertaining

The expenses of a particular occasion are normally allowable for tax if the purpose was to discuss a particular business project. They may also be allowable if the purpose was to maintain an existing business connection or to form a new one, even though no new business was actually done. However, no allowance is given for entertaining personal friends or business acquaintances where there was no business obligation to entertain them. Reciprocal entertaining between businesses often happens but is not allowable. 

If you wish to claim for an entertaining cost to be allowable for tax, you should support the deduction with reasonable records of amounts spent on particular occasions, the nature of the entertainment, the persons entertained and the reason for the entertainment. 

1. Childcare

Childcare vouchers of up to £55 per week (2010-11) per employee are not taxable if they are used for approved or registered childcare providers and the voucher scheme is available to all employees.

What are the penalties for failing to comply?

An employer who fails to make the P11D return on time may incur a penalty of £100 per 50 employees for each month or part of a month that the return is late. If an incorrect P11D return is made, they may face penalties up to £3,000.

What you have to do

You are able to submit your P11D and workings with the end of year payroll return which is due at HMRC by the 19^th May. However, the final deadline for the P11D is actually the 6^th July.

You will need to make a declaration to us when we prepare your paperwork about any benefits or expenses that should be recorded on the P11D.It is your responsibility to ensure that this is correct. Please contact us at info@candmservices.co.uk if you have any questions.