As Surrey tax accountants we see a lot of situations where businesses, most often through no fault of their own, are facing a tax enquiry into their financial affairs. Whilst enquiries are often undertaken by HMRC randomly, often they arise because HMRC have information which does not agree to information included on returns submitted by the business, or because returns submitted do not conform to HMRC’s expectations.
Forms P11D can be a good example of this and are a topic we cover every year because they are the single biggest cause of PAYE enquiries for business owners.
Clients who have experienced an enquiry by HMRC know only too well what a difficult and stressful experience it can be – preferably one to be avoided. The problem with forms P11D, which is likely to be the reason why they are the source of so many tax enquiries, is that they are particularly time consuming to complete, since they involve the collating of receipts and paperwork, and analysing these into the correct declarations.
What are forms P11D?
They are returns required to be submitted to HMRC which detail all the expenses and benefits in kind provided by the company in the previous tax year to directors and employees, irrespective of whether they are taxable. Returns must be made by 6 July 2012 of benefits provided in the year ended 5 April 2012. This is a strict deadline after which time penalties apply. As a result of information disclosed on the P11D by the company, depending on the level of benefits received and whether a claim can be made that they were ‘wholly, necessarily and exclusively’ incurred for business purposes, the individual may be required to pay additional tax on their self- assessment tax return and the company as employer will be liable for additional national insurance contributions on the benefits provided.
Smartphone exemption from P11D
There is some good news, given that 1 in 4 mobiles now in use is a Smartphone; last year HMRC decided that devices like iPhones and Blackberrys are now classed as business tools just like laptops, and so are not subjected to tax as a benefit in kind even where used for private calls and e-mails, provided the contract is between the provider and the employer directly (not the employee). Most companies actually did not make a distinction anyway between a Smartphone and an ordinary mobile, which has been tax exempt for some time. But if you did, it is possible to reclaim any extra tax paid back as far as 2007, provided your application is received by the end of July.
Mistakes to watch out for on the P11D
Having to complete such a detailed form makes P11Ds open to errors and it is therefore well worth getting the administrative work completed by your accountant. If you do decide on a DIY approach to completing P11Ds this year, these are some of the most common mistakes:
– Not ticking the director box when the applicant is an employee and director;
– Forgetting to complete all the relevant sections of the form;
– Leaving the cash equivalent box empty;
– Not including the full gross value of a benefit with mixed business and private use, a car for instance;
– Failing to specify fuel payments as a benefit.
Dispensation: how to avoid completing such detailed forms P11D
To save time, many businesses opt for a dispensation from HMRC, which means you no longer need to include itemised reimbursed expenses. To obtain a dispensation you will need to show that reimbursed expenses are incurred purely for business purposes, and are not therefore taxable; that all expenses claims are independently authorised within your organisation; and that receipts for expenditure are provided. A dispensation can save a substantial amount of analysis work and is well worth obtaining for future years if you don’t have one already.
For help or advice on completing P11Ds please contact Lesley Stalker by emailing las@rjp.co.uk.