These questions are being answered by Learn HR, a market leader in the provision of HR and payroll training and nationally-recognised professional qualifications.
Q: How can the vast amount of work involved in preparing for and completing P11D expenses and benefits returns be reduced?
A: There are three ways in which the workload can be reduced significantly:
- maintaining the necessary records throughout the year
- using P11D software to maintain the records
- obtaining a dispensation from the tax office
Maintaining records throughout the year
It is better to address this question earlier in a tax year than later. Tackling the whole P11D reporting requirement in the few weeks between the end of the tax year and the 6 July filing date may take up considerable time and resources. At that time it may also be very difficult to find accurate information dating back to the start of the tax year that has just ended. It would be better to maintain appropriate records throughout the tax year so that everything is to hand when it is time to prepare the forms.
As each employer keeps records differently and different departments are used to prepare P11Ds, it is impossible to give a set of directions suitable for all employers.
However, based on the work involved in completing P11Ds for the last tax year, why not see whether it is possible to arrange for all of the records that were collected at that time – expenses payments, vouchers, mileage allowances, P46(Car) forms, gifts and awards, company accommodation records, loan repayment schedules, company property on loan records, etc – to be provided routinely throughout the year instead. In any case, mileage allowance payments, the provision of vouchers and payments made on behalf of employees are routine payroll department issues for NICs purposes and the information must arrive as soon as the event occurs.
Using P11D software to keep the records
Another way of considerably reducing the workload is to use P11D software. There are a number of different systems on the market, most of which can be used throughout the year to collate and maintain the necessary information and, after the year-end, provide a file for magnetic media or electronic submission to the Revenue.
Dispensations
Every employer should have one. Accountants and bureaux with responsibility for completing P11Ds for their clients should help each of their clients obtain one.
A dispensation is a notice, provided by an employer’s tax office, that authorises the employer not to report certain expenses and benefits on form P11D for specified groups of employees. The kinds of payments that may be included in a dispensation are reimbursement of travel and subsistence expenses, reasonable scale rate payments, entertainment expenses, reimbursement of business telephone calls from home and professional subscriptions. It is important to understand that, without a dispensation, all of such payments and benefits must be reported, even if they are entirely business-related. However, round-sum allowances that are not accounted for against receipts will not be included.
A dispensation is also valid for NICs purposes. If expenses payments are covered by a dispensation, there is no Class 1 NICs liability. Similarly, if a benefit is covered, there is no Class 1A NICs liability.
A dispensation will only be issued if the Inspector is satisfied that:
- if the expenses or benefits were reported, the employees would be able to claim full tax relief, and
- the employer has an effective means of control over the payments made and, where possible, the payments are supported by receipts
A dispensation may only apply to a controlling director’s expenses if there is independent documentation to vouch for the expenditure.
Application for a dispensation may be made on form P11DX, included in the explanatory booklet IR69 Expenses payments and benefits in kind – How to save yourself work (www.inlandrevenue.gov.uk), or by contacting the tax office by letter or telephone. Most importantly, the employer must be prepared to describe the in-company procedures for controlling and authorising the payment of expenses.
View all our HR tips:
