P11d

Two dates are ingrained on the mind of anyone who deals with payroll matters. One has now passed for this year (19 May - submission of form P35) and the other is in less than two weeks time (6 July - submission of P11D forms), explains Jennifer Adams.
Some of the questions posed in Any Answers suggest that completing a form P11D is surprisingly not straightforward, with many questioning when one should be submitted. This article attempts to bring together the more ‘non- straightforward’ points and thus hopefully save time searching HMRC’s Guide 480 (Expenses and Benefits) for the answers.
Obligation to submit
A number of recent postings queried the obligation to submit for directors - the answer is to go back to first principles and ITEPA 2003 s 5 which states that “the provisions of ... employment income ... that are expressed to apply to employments apply equally to offices unless otherwise states”. Any office holder (to include non-executive directors) should be subject to PAYE whatever the amount of income received (even £NIL); ESC A37 (Tax treatment of directors fees received by partnerships and other companies) is a separate issue and in any event is invariably rare.
A payroll registration may be required but do P11D’s need to be submitted? The rules governing the tax treatment of benefits in kind (BIK) are to be found under ITEPA 2003 Pt 3, the provisions known collectively as ‘the benefits code’. The code applies in its entirety, any received needing to be declared unless the employment is ‘excluded’. Submission is required where benefits and/or expenses (including those reimbursed) are provided by the company to:

• All directors and employees earning in excess of £8,500 (in cash payments and /or benefit cash equivalent)
• full-time working directors earning less than the limit but owning more than 5% of the share capital

Part-time directors earning less than the limit and owning less than the 5% therefore do not come under the rules and there is also no obligation if all benefits and expenses are covered by a dispensation or PAYE settlement agreement (PSA).

petersaxton summarises the position for a full-time director owning more than the 5%:

“If a company doesn't pay wages and doesn't provide taxable benefits and round sum expenses but does reimburse expenses they would have to set up a payroll scheme and either apply for a Dispensation or prepare, submit and distribute P11Ds”.

How to save time and costs
Many comments bemoaned the time cost in preparing P11D’s that will only eventually result in a £NIL tax charge as the director/employee will, in turn, claim the P11D expense figure on their Tax Return but jem suggests a way round this under, as having spoken to HMRC his firm just ticks “the P35 box stating that no P11d’s are due and then submits a P11D if it is subsequently found to be needed”. Euan MacLennan reminds that ‘ticking the box’ is for information purposes  only - penalties being due if the P11D forms are found to be due but are not submitted by 6 July and don’t forget to press the ‘submit button’ when you do send the form!
Dispensations
The majority of Any Answers respondents thought that a dispensation should be sought for all the ‘one man band’ companies on their books as a matter of course not least because it would cover any future HMRC queries but also because they are now ostensibly easier to apply for.
taxhound commented that “You can apply on line for dispensations now (form p11dx) and I have had a quite a lot of success in getting these for quite a few one man limited companies I get the client to fill in a P11dx and then copy there (sic) answers into the online application (which for some reason is not identical but there you go...)
Even if a dispensation is granted be reminded that it does not cover every benefit and/or expense, further, HMRC is supposed to review them regularly to ensure their validity (the HMRC website suggests they do this every five years but has anyone known this to happen?)
The reimbursed expenses really need to be checked every year. The question of who does this chore for checking each company client also produced a number of comments. the consensus of opinion being that it would be a difficult procedure to ask clients to prepare the paperwork (most won’t be bothered) or have the knowledge to “go through the accounts, see whether any P11Ds are needed, prepare, submit and distribute any P11Ds or state they are not needed on the P35 or phone HMRC”.
It is obviously too late to apply for dispensations this year or to take jem’s route of ticking boxes but possibly applying is something to put on the ‘To Do List’.
The future for P11D’s
The powers that be at HMRC introducing Real Time Information’ (RTI) appear to be aware of the P11D pain as the very last point in the discussion document on ‘Improving the operation of Pay As You Earn (PAYE)’ published on 27 July 2010 confirmed that the new RTI was not intended to include BIK assuming that the procedure would “continue to be returned annually in areas using form P11 d as it is now”. At the Payroll World Spring Update Conference in March Phil Nilson, the employment strategy manger at HMRC’s business customer unit’s employer team responded to a question from the floor by saying that an earlier consultation on including benefit in kind in RTI had resulted in it being “put in the long grass”. This seems to have been confirmed in the follow up document ‘Improving the operation of PAYE: collecting Real Time Information’ published in Sept 2011 where interestingly there was not a word about BIK and P11d’s.
Meanwhile the old system remains and if you still have P11D’s to complete and submit in the short time left before the submission deadline it might be worth taking a few minutes checking out Diana Bruce’s article which lists some common errors made when preparing P11D’s.

From AccountingWeb