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The P11D - a
particularly nasty form
As part of an
employer's year end responsibilities is the requirement to prepare this form
to declare any taxable benefits (eg company car) and other non-salary
payments (eg travelling expenses) made to all directors and any
employees paid over £8,500 pa. As well as declaring taxable benefits
the process also involves calculating and paying employer's NI on the
benefits.
The concept of declaring
business expenses claimed often causes confusion as, rightly so, these are,
not usually taxable on the director/employee, so why declare them?
Very basically, any sum paid to a director or employee is, by tax law,
regarded as earnings and it is then up to the individual to make a claim for
the element that s/he regards as being for business purposes.
Consequently, if someone claims £100 travelling expenses from their employer
this is declared on the P11D and also as part of the person's taxable
earnings on his/her tax return. The same amount is then added to the
employment expenses section of the return, thus cancelling any taxable sum.
With the large number of possible benefits and
expenses as well as the different methods used (eg company credit card)
these forms are extremely onerous and with a submission deadline of 6 July
it means that business records (for the year to 31 March) must be accurate
and available well in advance.
By far though the worst
aspect of these forms are the potential penalties
-
Forms submitted after 19 July will attract an
automatic penalty of up to £300 each and up to £60 per day thereafter.
-
Forms submitted inaccurately can face a penalty
of up to £3,000 each.
In addition, should a form be shown to be
inaccurate, the tax office is perfectly at liberty to assume that the forms
submitted for the previous six years are also inaccurate, resulting in a
great deal of time and effort to prove otherwise.
Just to get all the bad news out of the way; in
the process of investigating any errors, should it transpire that taxable
benefits were provided to individuals and not properly declared then the
employer could find itself responsible for paying over the tax & NI on a
grossed up basis. In other words a £100 benefit would be treated as
net pay resulting in a tax and NI bill of approximately £60.
How to cut down on the work
and risk?
-
Keep your accounting records up to date and
capable of distinguishing the sums paid to or for individual directors &
employees;
-
For payments of business mileage for use of own
car, ensure proper mileage records are maintained and pay no more than the
authorised mileage rates. Such expenses payments are then excluded from P11D
declaration;
-
Apply for a "dispensation" from having to
declare business expense payments. This has only recently been
permitted for small owner/managed businesses and so we are in the process of
arranging this for as many of our clients as possible;
The above is only a brief summary of the topic
and the rules for taxation of benefits are notoriously complex.
Consequently check with us if you have any doubts or queries.
15/11/07
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