An inherent problem with P11d completion is that the individuals who know the business sufficiently well to have access to all necessary information may not have the technical knowledge to know what is relevant for the completion of the forms. Furthermore, the range of possible entries required on a P11D is so wide that without a detailed knowledge of a business it can be difficult for your accountant to identify all of the potential P11d items without undergoing a full inspection of the business records. For this reason items frequently get missed from P11d’s and examination of P11d’s is a major focus of attention for HMRC PAYE compliance visit.
Below are five examples of things that I often see missed from P11d’s.
1. Directors loan accounts and expenses
The information required to establish whether there are any relevant director expenses or indeed if directors have been borrowing money from the company won’t necessarily be apparent from the day to day records of the company. Often only the directors themselves will have that knowledge yet the individuals responsible for preparing the P11d information may not know what questions to ask or feel they have the authority to interrogate their bosses regarding the detail of their expenses. This can be a particular issue for the smaller owner managed business which won’t have the more extensive accounting functions available to larger firms. The extent and nature of the directors’ loan accounts and expenses may not be established until the year end accounts are prepared which may be some months after the P11d filing deadline.
2. Assets Transferred to Employees
The transfer of assets to an employee is a taxable benefit equal to the market value of the asset at the time of transfer. Company cars and laptops are assets which I frequently see being transferred, but putting a value on those assets is a more difficult task than simply taking the written down book value. Second had car value can vary widely depending on the condition of the vehicle and hence it is advisable to keep evidence of the state of the vehicle to support any valuation in the event of an HMRC compliance visit which may take place months or even in some cases years after the vehicle has been sold. With regard to laptops, arguably a second hand laptop has little, if any, value but again you should keep contemporary evidence to support any values used.
3. Employees Phones
Employers frequently provide mobile phones for their employees. The provision of a single mobile phone is not a taxable benefit regardless of whether there is any private use. This is one of the very few tax exempt perks that an employee can receive, but the exemption only applies to phones which are owned by the employer or where the contract is in the name of the employer. If the employee is reimbursed for using their own phone then a different tax treatment will apply and only identifiable business calls will be exempt. Frequently there will be no identifiable business calls at all as all calls will be covered under the monthly line rental. In this case HMRC will treat the whole expense as taxable in the hands of the employee.
4. Staff Entertaining
Most employers and employees are aware that staff entertaining is tax free up to £150 her head per year. However, this exemption only applies to annual functions such as Christmas parties or summer outings where all staff are invited. If, say, a manager takes his team out for a drink and is reimbursed the expense then that reimbursement is a taxable expense item to be included on the manager’s P11d!
5. Personal use of Employer’s Assets
Any asset made available to an employee for their personal use gives rise to a benefit in kind charge. The basic charge is 20% of the market value of the asset when it is first made available. Company laptops are probably the most common example of this but there is exemption from the charge where private use is merely incidental to the business use. The main problem here is less the calculation of the benefit but more a case of establishing when a benefit may have arisen. The bookkeeper will be looking primarily at transactions going through the bank statements and may have no idea that one or more employees may be allowed to use company assets.
In conclusion, the completion of forms P11d is a thankless task and will inevitably be prone to difficulties. If you are preparing the forms then please don’t be afraid to ask the awkward questions of the directors. If you are director responsible for signing off the P11ds then remember anything of any value received by an employee (which includes you) from their employer, regardless of whether it is in cash or in kind, then unless it has already been taxed through PAYE, the chances are it will need to go on a form P11d.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.
Share
