Benefits in Kind - are you compliant?

Do you or any of your employees have the following:

  • Company cars
  • Private fuel paid for by the business
  • Company van with private use
  • Company/ business credit card
  • Private phone bills paid by the employer
  • Loan provided from the employer
  • Living accommodation provided by the employer
  • Expense claims
  • Private medical insurance?

If the answer to any of the above is yes then your business is within the benefits in kind reporting system.  Benefits in kind need to be returned to HM Revenue and Customs on a form P11D. These are due to be filed on 6 July following the end of the tax year.  National insurance, being Class 1A NIC, is charged at 13.8% of the total benefits in kind of a business.  It is payable by 19 July following the end of the tax year.

However, if the employee was obliged to incur the expense, and the expense was incurred wholly, exclusively and necessarily in the performance of their duties of employment, then a claim can be made exempt the expense payment from income tax (and effectively class 1A NIC).  Nevertheless, that still requires the completion of another form!

There are a few exemptions from the benefits in kind reporting requirement. For example, loans to employees under £5,000 and trivial benefits such as flowers at a particular occasion or a turkey or a bottle of wine at Christmas are exempt.  Mileage payments for business travel within HMRC approved rates don’t need to be reported and neither do mobile phones, provided that the contract is in the name of the employer and not the employee.

Penalties

The penalties for late filing of P11D forms are up to £300 per form (plus potentially up to £60 per day for continuing delay).  Additionally, there is a penalty of up to £3,000 perform for an incorrect form.

Help is at hand – P11D dispensations

The reporting system, if properly followed, can lead to a rather large paper trail, even with an online filing system.  Thankfully, it is possible to apply for a dispensation from the benefits in kind reporting system for many common business expenses.  A dispensation would typically cover items such as travel and subsistence, credit cards used for business and business entertaining expenses.  A dispensation would only be granted where there is no tax at stake, i.e. when the expenses are genuine business expenses and when HMRC are satisfied that an adequate reporting system is in place.

As well as the reduced reporting requirement, another reason to apply for a dispensation is that it stops HMRC from including reimbursed expenses in an employee’s tax code, even when they are tax deductible.  This saves the employee from having to contact HMRC to ask for the coding amendment to be effectively cancelled out by the expense which they incurred.

A dispensation can be granted to start from the start of the tax year, even if you apply later.  So it would be possible to apply for a P11D dispensation now which took effect from 6 April 2013, although you would still need to comply with the P11D filing requirements for the tax year ended 5 April 2013.

PAYE Settlement Agreements (PSAs)

An employer may have unwittingly fallen foul of the benefits code and may wish to settle the income tax due on behalf of its employees.  This can be done, typically for irregular and trivial items by way of a PSA.  A PSA can’t be used to cover cash payments or large benefits such as a company car.

Summary

It is very easy to fall foul of the benefits code, which can be quite expensive if HMRC arrive for a PAYE inspection.  So if you have any particular queries, do give us a call rather than wait for the tax man to arrive at your door.  Prevention of tax problems is the best form of cure!

David Robinson, Tax Consultant
 

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