OVER the next few weeks, businesses will be busy reporting to HM Revenue & Customs expenses payments made and benefit in kind provided to their employees on forms P11D for the year ended April 5, 2012, in readiness for the filing deadline of July 6.
The completion of forms P11D can be a laborious task as well as a potentially costly one if they are not correctly completed as the Revenue can impose penalties up to 100% of the tax and national insurance contributions (NIC) unpaid, together with interest charges.
Common P11D mistakes found by the Revenue when they review employer business records are:
l Interest-free or subsidised loan benefits – No taxable benefit will arise if the total amount of loan does not exceed £5,000 at any time in the tax year. Often, loans exceeding this figure do arise, but are also repaid before the end of the year but a benefit in kind will still arise and this needs reporting on form P11D
l Cars provided to employees for their private use – The benefit in kind charge is determined by a combination of the car’s list price, optional extras and vehicle’s CO2 emission. Sometimes, businesses do not use the correct list price or forget to include optional extras when preparing forms P11D leading to additional tax/NIC liabilities
l Employer-owned cars and vans only used for business purposes – There are strict conditions for tax exemption to be given for any incidental private use by employees of such “pool” vehicles and frequently the Revenue obtain additional tax and NIC due to the lack of records kept by businesses to support pool status or because an employee has used the car on more than “incidental” occasions
l Assets owned by a business and transferred to employees – A benefit in kind arises if the price paid for the asset is less than its market value. Additional liabilities arise as the Revenue do not always accept the value paid by employees for such assets. It is advisable to obtain a third party valuation where the asset is of substantial value such as a car or house etc in order to counter Revenue attempts to imply that a benefit in kind arises
l Business Mileage Allowances – No records being kept to support the payment at tax-free rates of 45p for the first 10,000 miles and 25p thereafter in employees’ own vehicles
l Home telephones – A benefit in kind arises if the business pays the employee’s private phone bill. Often the bill is in the employee’s name and the more expensive payroll NIC will be due instead of the usual Class 1A NIC associated with P11Ds.
The Revenue can go back a number of tax years when looking at business records and mistakes as mentioned above can result in unexpected and expensive tax bills.
Forms P11D submitted after the July 6 deadline will also attract a penalty of £100 per month or part month of lateness, for every 50 or part-batch of 50 employees provided with benefits.