What are the P11D reporting requirements?
P11D dispensation agreements were abolished for the 2016/17 tax year onwards and replaced by a general expense exemption meaning reduced reporting requirements for those employers that previously did not hold a P11D dispensation.
Understanding and abiding by the revised rules in these situations is important, to ensure ongoing compliance and avoid penalty.
A dispensation previously removed the requirement to report reimbursements of specified business expenses to employees. However, only employers holding such agreements were excused from reporting these specified expenses.
General exemption from reporting certain employee expenses
Since 6 April 2016, dispensations have been replaced by a general expense exemption which removes the requirement to report business expenses, so that employers are now only required to report taxable benefits and certain expenses provided to their employees.
Employers that agreed bespoke reimbursement rates for particular expenses within their dispensation during the period 6 April 2011 to 5 April 2016 can continue to benefit from using these rates (rather than applying the exemption) for up to five years from the date they were agreed.
Avoid penalties through online reporting
More and more employers now complete their P11D reporting requirements online. There are numerous benefits of completing this reporting online; the paramount of which for employers being the electronic confirmation that HMRC has received their submission. In addition, the online system has been programmed to check for common errors, thereby reducing the likelihood of the employer’s submission being rejected. This facility may protect the employer from exposure to penalties which may apply if paper, rather than online, returns are used.
Payrolling of taxable employee benefits
From 6 April 2016, employers are also able to formally payroll most taxable benefits, provided they register with HMRC prior to the start of the tax year. If this service is used, no forms P11D are required to be prepared for the specified benefits; however, a form P11D(b) employer declaration is still required to account for Class 1A NIC.
Employers that successfully registered and payrolled the appropriate benefits throughout the year are still obliged to provide their employees with a statement highlighting the benefits that have been payrolled, so that they can utilise this when completing their personal tax returns.
If an employer failed to formally register with HMRC before the start of the tax year but continued to payroll benefits for 2016/17, it will still have to prepare and submit forms P11D and P11D(b) by 6 July 2017.
6 July is the deadline for the submission of P11D forms although this year the date falls on a Saturday and pushes the deadline forward to 5 July 2019. The initial penalty for late submission is £100 per every 50 employees for each month or part month your P11D(b) form is late or 100 per cent of the Class 1A NIC contributions due if lower. Penalties and interest will also be applied for late payment of Class 1A NIC to HMRC. For inaccurate submissions, penalties are based on a percentage of potential revenue lost according to taxpayer behaviour and range from 100 per cent for a deliberate and concealed action to 0 per cent where it is established that a genuine mistake has been made after having taken reasonable care.
Decisions made by the employer on whether an expense or benefit is reportable and taxable in the hands of the employee may be challenged by HMRC so if you have any doubts it is important that you get appropriate advice.
Clarifying recent changes and what they mean for you:
- business expenses that fully meet qualifying conditions are now exempt and do not need reporting to HMRC on P11D forms – employers do however need to ensure that they have a system in place to ensure that employees are in fact incurring and paying expenses and that a deduction for the expense is in fact due;
- bespoke round sum expense payments cannot be paid tax and NIC free at a level higher than the HMRC published benchmark rates without prior agreement with HMRC who will need to issue an approval notice; and
- the expense exemption will not apply to expenses that are paid in conjunction with a salary sacrifice arrangement.
HMRC may challenge employers who have not adjusted their processes and procedures to take account of these rules and may impose penalties and seek retrospective tax with interest where errors are made.
Take the opportunity to review your expense procedures to ensure that you have processes that are robust and consider the changes required to remain compliant in the post dispensation era. Act now to meet the July 5 deadline!