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Is this the beginning of the end for P11Ds?

13 August 13 | By: Jas Jhooty



Last week the Office of Tax Simplification (OTS) published its interim report as part of its review of employee benefits and expenses. This report is recommending a complete overhaul of the current system to the government, with particular emphasis that the existing P11D process is of major concern.

The OTS highlighted four key areas that should be the focus of significant action, along with 43 smaller “quick wins”.

HMRC administration including the P11D Process

The report highlighted the shortcomings of the current P11D process saying that many employers were dissatisfied with the onerous burdens placed on them having to report cash equivalents of benefits-in-kind after the year end. Most employers were in favour of payrolling benefits on a voluntary basis.

There are currently 4.5 million P11Ds submitted annually costing employers an estimated £160 million to prepare and file. The archaic £8,500 test for P9D preparation was heavily criticised along with having two sets of separate benefit valuation rules for P11Ds and P9Ds.

The fact that P11Ds have not been included in RTI still leads to employee confusion and misunderstandings as underpayments of tax are inevitable under the current system.

HMRC bureaucracy insisting that nil P11Ds be completed when benefits are payrolled was universally condemned and deemed to be pointless.

The inflexible rules of what can and can’t be included in a PAYE Settlement Agreement were also brought into question. The interim report stated that a more flexible system would generate savings to employers and raise more income for HM Treasury.

The dispensation process could also be made a lot easier by allowing employers the ability to “self assess” what they think is non-taxable business expense.

Travel & Subsistence expenses

The last time T & S rules were updated was 1998 and working patterns have significantly changed since then. Also non-deductible travel expenses are increasingly being incurred by employees to meet the commercial needs of their employers. Employees do not view these expenses as personal in nature and employers often incur additional costs having to settle the tax and NICs on these items on behalf of their employees.

Accommodation benefits

The rules for taxing living accommodation were singled out as being antediluvian and they must be updated to make them relevant to the 21st century.

Termination payments

These were highlighted an area of particular difficulty with major confusion by nearly all employers of when the £30,000 exemption should apply. The taxation of PILON clauses in employee’s contract of employment is also very often missed by employers.

43 other “Quick Wins”

These include: –
  • the ability for employers to sort out straightforward employee tax issues with HMRC if the employee gives consent
  • changes to HMRC forms
  • publishing a list of items that automatically qualify for a dispensation
  • further detail on the cycle to work scheme
  • the operation of salary sacrifice arrangements
  • private health cover
  • gift or discount vouchers
  • etc

And finally

We at emTax welcome most of the proposals contained in the interim report. The taxation of benefits and expenses has been cobbled together with a knee jerk piecemeal approach for over 60 years and is ripe for modernisation.

Before we end, you may be interested to read our article on PAYE Settlement Agreements that has been published in this month’s Purely Payroll magazine

You can download the magazine here.


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