Don't make a meal of it
5 Jan 10
Recording employee benefits on the P11D form ranks as one of the most onerous pieces of paperwork in the tax year. Peter Fry has some ideas that could make it less painful in the future
by Peter Fry
Having taken a breath after completing the P11Ds for your clients and probably saying “never again” again this year, it is time that you looked to see if there are better ways of dealing with the amount of forms that need to be completed.
There is always the fear of “have I managed to get all the details from the client and have I got the correct figures?”. After all, there is the possibility of a £3,000 penalty if you are wrong!
Firstly, let’s look to see if you needed to do the P11D in the first place. The rules for who should submit a form are in s216 etc of ITEPA 2003 (The Income Tax [Earnings and Pensions] Act). They include all directors but exclude, in the main, any “lower paid employees”. Lower paid employees are defined as earning less than £8,500, including the value of any benefits enjoyed. This, as we all know, has not changed for many years. In fact, if the employee was earning the National Minimum Wage, they would only need to be paid for 28.5 hours per week to be above this level, which does not reduce the numbers greatly.
Next, we need to consider whether any dispensation is available to reduce the amount of work that needs to be done. Dispensations are available in respect of all benefits apart from:
• company cars and vans that are taxable
• private medical insurance
• cheap loans
• mileage payments (employees’ cars)
• benefits and expenses covered by an existing exemption in law.
Further guidance can be found on the HMRC website at www.hmrc.gov.uk/paye
The way to apply is fairly straightforward, with all the details you need on the HMRC website. P11DX is the form that needs completing. On this you can stipulate whom the dispensation covers. It can be restricted to either the directors or employees or both.
Among the stipulations that are needed to obtain a dispensation, you have to confirm how the expenses claims are reviewed and checked. This is not normally a problem unless you are a sole director and employee.
If you are a sole trader, then how do you get the expenses claims independently checked? One suggestion that has been made is for the accountant or bookkeeper to provide this service. For it to be cost effective the claims will need to be fairly substantial. Otherwise, P11Ds should still be completed.
Another group that could use dispensations are clients with mobile workforces who could gain from HMRC’s new scale rates for subsistence payments.
We are often asked how much can be paid to employees tax free for subsistence. Up until now, there has not been any satisfactory answer. However, HMRC issued a brief (24/2009) on 3 April regarding new changes from 6 April. A new scale of fixed allowances is now available for employees’ subsistence. As long as the employee has incurred subsistence expenses while travelling on an allowable business journey, the employer will be able to pay the following amounts tax free:
• Breakfast rate – £5 if the worker leaves before 6am and buys a meal away from home. This can only cover irregular occasions. If they usually leave for work early then nothing can be claimed.
• One meal rate – £5 as long as the worker is away from home/usual workplace for at least five hours and has bought a meal.
• Two meal rate – £10 as long as the worker is away from home/usual workplace for at least ten hours and has bought a meal.
• Late evening meal rate – £15 if the worker has to work later than 8pm having worked their usual hours and buys a meal away from home. If they usually work late then nothing can be claimed.
These allowances can be combined. For instance, the ten hours and evening meal allowance could both apply.
To be able to use the new system, the employer needs to keep accurate records as usual and to apply for a dispensation. To do so you need to complete a form P11DX by ticking the appropriate boxes. None of this affects current agreements until they are reviewed; however, it is always possible to reapply to change the agreement that you have.
The above is just a summary. It is important, of course, to check the detail in the HMRC Brief before advising clients.
However, if dealt with properly, the new system has the potential for reducing administration and uncertainty. Travel and subsistence is always a favourite area for PAYE auditors to check, and we have seen many examples of employers facing large tax demands after compliance checks on their procedures.
A simple, compliant system, coupled with a detailed dispensation is a valuable insurance policy against such demands.
For the items not covered by a dispensation, the client could apply for a PAYE Settlement Agreement.
This, to use HMRC’s words, “is a flexible scheme you can use to settle any PAYE tax and National Insurance contributions due to us on three types of expense and benefit: minor items, irregular items, and items it’s impractical to operate PAYE on, or to value for P9D/P11D purposes.” The tax is grossed up, so there is a slightly higher charge.
Now is the time to review the position of your clients to ensure that they are compliant with current legislation and to look for ways of reducing the burden with completing the end of year forms.
Peter Fry is a senior tax consultant with Professional Tax Consultancy, an advisory service which is part of professional fee protection specialists the PFP group.
Breakfast rate
If the worker leaves before 6am and buys a meal away from home. This can only cover irregular occasions. If they usually leave for work early, then nothing can be claimed
Late evening meal rate
If the worker has to work later than 8pm having worked their usual hours and buys a meal away from home
Flexible agreement
For the items not covered by a dispensation, the client could apply for a PSA. This can settle PAYE or NICs due to HMRC in three areas of expense or benefits