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Easing the P11D Pain

Newsletter issue - June 07.

Completing P11Ds to report employees' expenses and benefits is a tedious job, but if the forms are incomplete or late in reaching the Taxman you could be landed with penalties of up to £300 per form. To help you along this year we have complied a list of tips to ease the process:

• Preparation is the key so make sure you have all of the following to hand before you start:
  • Copies of the P11D forms submitted for 2005/06;
  • Any agreement or dispensation reached with the Taxman that may eliminate the need to include some or all expenses;
  • Software needed to complete the P11Ds or compile schedules;
  • Copies of the Taxman's guidance: leaflets 490, 480 and CWG5;
  • Access to the "List 3" of approved bodies for subscriptions (on HMRC website: http://www.hmrc.gov.uk/list3/index.htm)
  • A complete list of all the directors and employees who received expenses or benefits in 2006/07.
• Check your software is working correctly. The P11D form changes every year, so you must use the latest version. You can submit P11D information to the Taxman on a single spreadsheet, such as when the only benefit provided is medical insurance, but you need to agree this format with your PAYE tax office first.
• The benefits and expenses must be calculated for the tax year to 5 April 2007, not for the employer's accounting period. However where the company year-end is 31 March that can be taken as equivalent to 5 April.
• Report the value of expenses and benefits including the VAT charged on the invoice, even if some or all of that VAT has been reclaimed by the company.
• Include the full cost of any travel tickets, meals or accommodation purchased by the employer and used by the employee. The Taxman insists that even where the company has bought the tickets rather than the employee, the cost must go on the form P11D, unless a dispensation covers those expenses.
• Allow yourself plenty of time for the task. The 2006-07 P11Ds must be with the Taxman by 6 July 2007, but you may want to send a copy of the draft P11D to the effected employees in advance so they can check data agrees with the benefits they have received in the year.

Do advise your employees that they need to report the P11D figures on their own tax returns and make claims for the expenses that had a business purpose, on the employment pages of the return, or by letter to the Taxman. This year there is a new automatic system for processing P11D information into the employee's PAYE code. So the your employees may find their tax code is altered in August or September to tax the expenses they have received, but this tax charge will not be removed until they have claimed a deduction for the business expenses.