Reporting expenses and benefits in kind
12 May 2018
This article was featured in the June 2018 issue of the magazine.
Beverley Smith ACIPP, CIPP trainer, provides timely information and guidance
A belated happy new tax year! However, we do need to remember that the last tax year is not wrapped up until such time that the annual P11D and P11D(b) process has been completed.
So, as a refresher, where an employer provides certain expenses and benefits to employees and directors (in addition to the employees’ normal salary), tax legislation dictates that such items are liable to income tax and National Insurance contributions (NICs). So, therefore, for those employees still employed at the end of the tax year, details of the benefits/expenses provided must be reported to HM Revenue and Customs (HMRC) in a P11D return, by 6 July following the end of the tax year.
Sounds simple enough, but year after year things can, and most certainly do, go wrong, such as:
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fuel benefit omitted from the return
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incorrect dates relating to the availability of the vehicle
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the unnecessary completion of the ‘from’ and ‘to’ dates showing the whole tax year, e.g. ‘06/04/2017’ to ‘05/04/2018’. The rule is, if the vehicle was available in the previous tax year, the ‘from’ box should not be completed, and if the vehicle will be available in the next tax year the ‘to’ box should not be completed
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including incorrect CO2 emissions
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not including accessories
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incorrectly recording capital contributions and private use payments. A capital contribution is a one-off payment towards buying the car, and private use payments are monthly or yearly payments for the use of the car. Both must be made out of net pay.
Reporting errors will mean amended P11D returns may be necessary; and incorrect information being reported could also mean penalties are due.
There are a great many benefits which employers can and do chose to provide to their employees. Some of the more common ones being medical/dental benefit, company cars, loans, accommodation and relocation benefits.
...HMRC’s online systems check for and inform you about common errors...
Media for P11D returns
There are various ways the P11D information can be submitted to HMRC.
Returns can be filed in paper format, but you might want to think about moving to online filing as HMRC’s online systems check for and inform you about common errors that may be encountered. There is then less risk that the submission will be rejected, which otherwise may result in your submission missing the filing deadline with penalties possibly being levied.
If you do continue to submit on paper, or you need to submit an amended return, you will need to send them to the following address: P11D Support Team, BP1102, HM Revenue and Customs, Department 1250, Newcastle-upon-Tyne, NE98 1ZZ.
Key changes
There have been several changes that have taken effect since the P11D submission for 2016–17, which you may not be fully aware of.
Apart from the normal tax year/date changes, several field labels included in the P11D return have been amended to include ‘or Amount Forgone’ and ‘or Relevant Amount’. These changes have been bought about due to the optional remuneration arrangements changes that came in from April 2017.
What does this mean for the P11D process? Firstly, employers must ensure that the correct taxable value is reported for those benefits caught by the new rules. To help employers determine the correct value, HMRC have updated the following worksheets:
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Worksheet 1 – living accommodation (https://bit.ly/2JRAisP)
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Worksheet 2 – car and car fuel benefit (https://bit.ly/2FGfKRK)
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Worksheet 2b – car and fuel benefit provided through an optional remuneration arrangement (https://bit.ly/2wdzAUM).
There have also been changes regarding the reporting of passenger mileage payments made in excess of the exemption. Up to and including 2016–17, these were reported in the P11D return in Box E, which was used for mileage allowance payments and passenger mileage payments. However, the 2017–18 return and guide advise that Box E is now for reporting mileage allowance payments, with passenger payments no longer mentioned. Therefore, passenger mileage payments should be entered in Box M, in the second line that is not marked for class 1A NICs.
...copy, fax, photocopy or a stamped signature will not be acceptable...
P11D(b)
The P11D(b) is the return of class 1A NICs due which also includes the employer’s declaration that all expenses and benefits (if any) have been accounted for, with one P11D(b) required for each pay as you earn (PAYE) reference.
You may wonder in the circumstance where there are no P11D returns or class 1A NICs to report for the tax year whether a nil P11D and P11D(b) is required. The simple answer is no, there is no requirement to complete the P11D return if there are not any expenses and benefits and no class 1A NICs to report and pay. However, if you have been asked by HMRC to submit a P11D(b) return and you have nothing to declare, you can confirm that there are no class 1A NICs due by completing the online declaration ‘No return of class 1A National Insurance contributions’, which can be located via this link: https://bit.ly/2ge4VJR.
If you do choose to submit a paper copy of the P11D(b) it must be signed in ink. A copy, fax, photocopy or a stamped signature will not be acceptable. If the paper form does not include a wet signature, then it will be returned and if not re-submitted by the due date may result in a late-filing penalty being issued.
In addition to the P11D(b) return being the employer’s declaration, it also provides the employer with a means of calculating and making any necessary adjustments to the amount of class 1A NICs due for the year.
If a revised P11D is submitted you must complete all the boxes, not only those you want to correct. For example, if the employee had £660 medical benefit and a car benefit figure of £3,000 but only the cash equivalent of the medical benefit was reported, the corrected form would need to show both the medical and car benefit figure. In addition to this you are also required to recalculate the previously reported class 1A NICs liability and submit a revised P11D(b) return.
...records must be retained for three years from the end of the tax year to which they relate
Class 1A NICs
Depending on the nature of the expenses and benefits and how they have been provided to the employee, will determine whether class 1A or class 1 NICs are due on the benefit. To help employers determine the correct treatment, HMRC have provided a useful table at appendix 1 of booklet CWG5, and there is also further guidance in booklet CWG2 – see ‘Further information’ below for links.
To help employers identify which benefits are to be considered in the class 1A calculation, the P11D return is colour-coded. Those items which are included in the brown boxes must be included in the class 1A calculation. Those included in the blue boxes can be ignored as the benefits in question are either totally exempt from NICs or class 1A NICs or liable to class 1 NICs via the payroll.
When paying over the class 1A NICs to HMRC your normal accounts office reference must be quoted plus the numerals ‘1813’ at the end: ‘18’ relates to the tax year and ‘13’ to ensure that the payment is assigned correctly. You must also ensure there are no spaces included between any of the numbers e.g. 123PA001234561813.
If an error is made when quoting the reference, HMRC may not be aware the class 1A NICs payment has been submitted and may continue to issue reminders along with default notices until such time that the payment is allocated to the correct reference. So it is imperative that any references included in your submissions are correct.
Optional remuneration arrangements (OpRA)
From April 2017, the tax and NICs advantages of benefits that are provided through OpRA (including salary sacrifice arrangements) were largely withdrawn. What these changes mean is that where a benefit is provided through an OpRA, it is now subject to income tax and class 1A NICs even if it is normally exempt from these charges.
Any arrangements which were entered into on or before 5 April 2017 retain their previous tax treatment until the earlier of a renewal or variation of the arrangement, with all pre-6 April 2017 benefits in kinds (BiKs) being caught by the new rules from 6 April 2018. However, the following benefits (which have an excluded or special case exemption) will continue to have full tax and NICs advantages when provided through an OpRA:
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employer provided pension contributions and employer provided pensions advice
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employer supported childcare (childcare vouchers) and the provision of workplace nurseries
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cycle to work schemes (cycles and cyclists’ equipment)
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ultra-low emission vehicles, which are defined as vehicles that have a CO2 emissions rating at or below 75g/km
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special case exemptions, e.g. buying annual leave via salary sacrifice, as this is considered to be an intangible benefit.
Cars and accommodation that were in place pre-6 April 2017, move into the new rules on the earlier of renewal or variation or April 2021. Pre-6 April 2017 school fees have special rules, but all move into the new rules from April 2021, which will mean that all BiKs will now be valued at the higher of the cash given up or the value under the traditional rules.
Employers also need to be aware that the ‘amount foregone’ is only the part of the salary sacrificed amount that relates specifically to the taxable car. It does not include the amount sacrificed for payments and benefits associated with taxable cars, such as a servicing. So, the full amount of the salary sacrifice (or cash allowance) should be apportioned between the taxable car and the tax-exempt benefits.
Payrolled benefits
Many employers have now opted to payroll certain taxable benefits provided to employees, with the result there is no longer a requirement to complete and submit P11D returns to HMRC. But to do this, employers are required to register to payroll prior to the start of the tax year.
Although there are no P11D returns to provide, employers are still obliged:
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to submit a P11D(b) return to HMRC to advise of the amount of class 1A NICs that are due, and
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in place of a copy of the P11D return, to provide the relevant employees with a letter detailing the benefits in kind that have been payrolled along with their taxable value.
Penalties
The financial penalties that can be levied are graduated and relate to the behaviour that led to the inaccuracy. The more serious the behaviour the higher the penalty, with the maximum penalty being £3,000 per return. The table sets out the penalty regime that applies.
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Failure to submit P11D returns by due date |
Penalty not exceeding £300 and daily penalties not exceeding £60 per day, per return can be levied for as long as the failure continues |
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Incorrect P11D return |
Up to £3,000 for each return |
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Failure to submit P11D(b) return by due date |
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Incorrect P11D(b) return |
A penalty not exceeding the difference between the class 1A NICs returned and the class 1A NICs that should have been returned |
Record keeping
Employers must keep a record of the date and details of all expenses and benefits they provide to employees, how the taxable amount has been calculated, and details of any contributions employees make towards the benefit or expense.
Best practice also dictates that you should retain copies of any correspondence received from HMRC, remembering that records must be retained for three years from the end of the tax year to which they relate. n
Further information
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CWG5 (2018) – Class 1A National Insurance contributions on benefits in kind (https://bit.ly/2HQwGXY)
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CWG2 (2018) – Employer further guide to PAYE and NICs (https://bit.ly/2sQ4D7C)
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Booklet 480 (2018) – Expenses and benefits – A tax guide (https://bit.ly/1JJUdUs)
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PAYE: end-of-year expenses and benefits (P11D) (https://bit.ly/1M3grlZ)