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How to avoid common P11D mistakes from occurring

28 May 14 | By: Jas Jhooty

P11D Warning

Most common errors

The deadline for submitting P11Ds is always 6 July, however, as that falls on a Sunday this year, the effective deadline is Friday 4 July.

Whilst it is important that the returns are submitted on time, it is even more important that they are correct. In order to help companies get their P11D returns right, we have compiled a list of the most common errors leading to P11Ds being incorrectly filled out.

Check your P11D dispensation

Any P11D forms that are completed which are not in line with an agreed HMRC P11D Dispensation Notice could incur HMRC’s wrath. You are required to declare all benefits and expenses payments not covered by a P11D Dispensation for your employees.

Employers should ensure their P11D dispensations are up to date and replicate your current expenses policies . They should be revisited every three years to ensure they are still relevant. In cases where agreements are not up to date, HMRC can back-date the revocation of the dispensation rendering P11Ds incorrect.

Effects of VAT

Always include the full amount of VAT on the P11D irrespective of whether or not it can be recovered from HMRC. As most businesses are only concerned with the net cost it is a very common (& expensive) mistake to leave off the VAT element on benefits-in-kind.

Company cars

Incorrect list and accessory prices for company cars can lead to under/overpayments of tax and Class 1A National Insurance Contributions. The list price is the inclusive price published by the manufacturer and includes all standard accessories, relevant taxes, delivery, etc. It is not the dealer’s advertised price or price paid for the car which could include discounts and cashbacks.

Later accessories added to company cars which exceed £100 should be included on forms P11D. These could include alloy wheels and, in some cases, satellite navigation systems. CO2 emissions data not taken from the V5 registration document for company car/fuel scale benefits could trigger an error fine. Cars first registered in the UK from 1 March 2001 (most company cars fall into this category) will have an approved CO2 emissions figure on the Vehicle Registration Document (V5).

Company car availability

If a company car is not available to the employee because it is being serviced or repaired and a similarly specified vehicle is provided to the employee in the interim, the “courtesy car” can be ignored and the P11D can be completed as if the original company car was always available to the employee as long as the period of unavailability is for less than 30 days.

Some employers misinterpret this 30 days unavailability rule for company cars and mistakenly apply it to periods when the employee is a new joiner to the company car scheme and is awaiting delivery of their newly ordered company car.

Car fuel benefit

Don’t forget that the car fuel benefit is an “all or nothing” charge. You need to be very careful that your mileage record keeping is immaculate if you intend to return a company car benefit without a corresponding car fuel benefit charge. This article provides more details of the steps you should take to avoid the car fuel benefit charge.

Fuel cards for privately owned vehicles

You cannot return a car fuel benefit in cases where an employee has been issued with a fuel card for their privately owned vehicle. The car fuel benefit only applies to company cars. Instead the total spend on the fuel card should be reported on the P11D under either Section K – Services supplied or in the brown Class 1A NIC box for Section M – Other items.

Company vans

Where vans are taken off your premises overnight by your employees a van scale charge may be imposed of £3,000 regardless of the van’s age as HMRC will assume that the vehicle is being taken away for private use.
The only way to eliminate this charge is to completely satisfy some quite onerous requirements to prove that there is no private use.

If you have vans, it is worthwhile reviewing the terms of their usage annually before submitting P11Ds.

Beneficial loans

In situations where an employee has a fluctuating loan balance throughout the year, make sure you correctly fill in the box for the maximum balance on the P11D. Don’t be surprised to receive an election from HMRC for the alternative precise method of calculation in these cases. Click here for more information on beneficial loans.

Private medical insurance

Don’t forget to include the Insurance Premium Tax element in your cash equivalent calculations.
Click here for more information on medical costs and welfare benefits.

Entertaining

Many employers submit incorrect P11Ds which either don’t report staff entertaining or incorrectly show that client entertaining has been disallowed in the employer’s accounts – by putting a cross in section N.
This can lead to a full HMRC enquiry into entertaining expenses including the corporate tax and VAT treatment.

Mileage allowances

Mileage payments reimbursed to employees using their own cars in excess of HMRC’s Approved Mileage Allowance Payments (AMAP) rates – currently 45p for the first 10,000 miles and 25p thereafter – are fully reportable on forms P11D.

Errors often occur where business mileage in an employee’s own car is over 10,000 miles in the tax year.
Click here for more information on mileage record keeping requirements.

Transfer of an asset

Often, benefits-in-kind are not reported where an employee benefits from the transfer of an asset at less than its market value, such as cars and computer equipment.

Make sure you have assessed the benefit for tax purposes correctly, taking in to consideration the sum paid (if any) and the correct market value. A good idea is to have a look on ebay for a similar item and keep a printout of the final cost it sells for.

Correctly identifying the relevant NIC charge

Identifying items to ‘fit’ the appropriate box can be difficult to assess. You should make sure you have applied Class 1 National Insurance Contributions on pecuniary liabilities (bills in the employees’ own names) and assessed benefits liable to Class 1A National Insurance Contributions in line with HMRC guidance found in Appendix 1 of the Booklet CWG5.

How emTax can help

We are currently offering P11D training courses that can be delivered online or onsite at your premises.

Please do not hesitate to contact us if you want any further information about this or any other employment tax service that we offer.

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