OXFORD BRANCH P11D UPDATE

1. OXFORD BRANCH P11D UPDATE MIKE EVANS MY CONSULTANCY 14TH March 2012

2. INTRODUCTION • Reporting requirements • Preparing for P11D Filing • Exemptions and exclusions • 2011/12 P11D Changes • Calculating the cash equivalent • Future changes for company cars

3. REPORTING REQUIREMENTS • Income tax charged on emoluments of an office or employment • Income includes salaries, fees, wages taxed through PAYE and • Perquisites and profits whatsoever, where P11Ds are needed • ‘Profit’ may arise from payment of non-business expenses or if employees are paid more than the business cost incurred • Expenses are part of an employee’s employment income • Expenses and benefits have to be reported on form P11D • Unless covered by a P11D dispensation

4. REPORTING REQUIREMENTS Form P9D (Rarely used) • No need to report expenses incurred solely and necessarily in the performance of the duties and business travelling expenses • Report other expense payments in excess of £25, including: • Round sum allowances e.g. mobile phone top ups • Relocation expenses and benefits • Any other payments or benefits • Vouchers and credit cards • Accommodation benefit

5. REPORTING REQUIREMENTS Form P11D • Report ALL expenses and benefits provided to employees and directors (or to members of their family or households) • If provided by virtue of their employment” • Include costs met directly by the employer • Reporting not restricted to amounts reimbursed • Unlike form P9D we cannot exclude expenses solely and necessarily in the performance of the duties • Report everything not specifically excluded or covered by a P11D Dispensation

6. REPORTING REQUIREMENTS • P11Ds are required for ALL directors • Except full time working directors with no material interest (5% ordinary share capital) and directors of a Charity or other non-profit making organisation • P11Ds required for any employee or director earning at a rate of £8,500 p.a. • Director includes any person in accordance with whose instructions the directors are accustomed to act

7. REPORTING REQUIREMENTS P11D OR P9D? • At a rate of £8,500 per annum? • Emoluments include • Salaries, fees, wages, bonuses, commissions and other cash pay, plus • Expenses, before any deductions and • Benefits in kind • Emoluments exclude approved pension payments and GAYE contributions • Part-time employee earning less than £8,500 per annum will be P9D

8. REPORTING REQUIREMENTS EXAMPLE - New employee started on 3rd January 2012 • Earnings to 5th April 2012 £7,500 • Expenses £ 164 • Medical benefit £ 240 • Total £7,904 • Actual earnings less than £8,500, but • Annual Rate (12/3 x £7,904) is £31,616 • i.e. over £8,500 per annum • P11D needed to report the medical benefit and the expenses • If not covered by a dispensation

9. REPORTING REQUIREMENTS • 19 (20) April 2012 Payment of PAYE/NICs on expenses • 19 May 2012 Submission of EOY PAYE returns • 6 July 2012 submission of: • P11Ds, P9Ds and P11D (b) • 19 (20) July 2012 for payment of: • Class 1A NICs on taxable benefits in kind • 19 (22) October 2012 for payment of: • Income tax and Class 1B NICs on 2011/12 PAYE Settlement Agreement (PSA) • Cheques to reach HMRC by 19th and • Cleared payments to reach HMRC’s bank account by 22 July or October

11. PREPARING FOR P11D FILING • How are the P11D returns to be submitted • Paper forms or electronic submission? • HMRC’s Basic PAYE Tools (Print and file, not online) • HMRC 'Online Return and Forms - PAYE' service? • P11D Software? • Online P11D filing is optional, not statutory • P11D software saves time and reduces errors • Paper returns for back up, last minute filing or amendments

12. PREPARING FOR P11D FILING • Who is taking responsibility for the task? • Preparing/completing the returns? • Technical check/proof reading? • Submitting the returns to HMRC? • Make that decision and agree a timetable • To provide the information if outsourcing • To submit the returns to HMRC • To meet the statutory deadlines

13. PREPARING FOR P11D FILING • What information do we need to complete the P11D returns? • What expenses and/or benefits were reported last year? • Review the P11D and/or Tax file • Set up a permanent file if necessary • Is there a registered PAYE Settlement Agreement? • Note items to be excluded from P11D reporting • Check the terms of any P11D dispensation • Note which items HMRC has agreed can be excluded from P11D reporting and that any conditions have been satisfied • Is the P11D Dispensation still valid?

14. PREPARING FOR P11D FILING Contact anyone you need information from • Payroll Department or Bureau for deductions from salary • Loan repayments, medical insurance contributions etc. • List of employees earning at a rate of £8,500 • Human Resources • Details of new benefits & Relocations • Finance Department • Cost details of expenses and benefits • Fleet manager or Leasing Company • Company car/fuel details • Anyone else? • Relocation company or Medical Insurance provider?

15. EXEMPTIONS AND EXCLUSIONS • Expenses covered by a P11D dispensation • Business travel and subsistence, • Business entertaining • Professional subscriptions • Other items specific to the employment • Taxable expense payments or benefits included in a PSA • Staff entertaining • Taxable travel • Included in a Taxed Award Scheme • Normally third party incentives/awards

16. EXEMPTIONS AND EXCLUSIONS • Exempt expenses and benefits • Car, motor cycle, bicycle parking at or near the place of work • Modest private use of heavy goods vehicles • Incidental overnight expenses • Works transport Services • Support for public bus services • Travelling and subsistence during public transport strikes • Transport between work and home for disabled employees • Late night taxis from work to home

17. LATE NIGHT TAXIS Limited exemption for transport from work to home Employees required to work later than usual (at least until 9.00 pm) Late working must be irregular (not infrequent) Public transport ceased or unreasonable to use it Limit of 60 journeys per annum (excess taxable) Expected abolition of exemption will not proceed! Abolition would impact on vulnerable groups Abolition would increase administration Going against the aim of tax simplification Remember! HMRC requires detailed records to be kept to justify any claims for deduction or exemption Tim Buss and Mike Evans for Quorum Training

18. LUNCHEON VOUCHERS TAX RELIEF • Tax and NICs exemption on 15p per working day! • Meal voucher provided by employer to an employee • Excess above 15 p liable to tax and NICs • Relief introduced in 1946 when food rationing was in place to help individuals afford healthy meals! • Benefit of the relief almost entirely eroded by inflation • Low in value and no longer achieves a clear objective • Relief will cease to be available for luncheon vouchers provided on or after 6 April 2013 • NICs exemption repealed from the same date • Cycle to work meals exemption also scrapped

19. EXEMPTIONS AND EXCLUSIONS • Small gifts such as flowers for births, marriage • But not if a thank you or a reward • Seasonal gifts such as a turkey, box of chocolates or ordinary bottle or two of wine • Not an expensive hamper or case of wine • If not trivial in amount! • Free coffee/tea/water available to all • Tax free if not available to all on minor & trivial grounds

21. 2011/12 P11D CHANGES • Only the tax year has changed, to 2011/12 • Still an A to N, Assets transferred to Section N, Expenses • HMRC expected to take a tougher line on the P11D Quality Standard – warning letters issued last year • Section D, Living accommodation, official rate of interest remained at 4% and note for Section H, beneficial loans • Section E, Authorised Mileage rate increased to 45p for first 10,000 business miles from 6 April 2011 • Section F changes to the car benefit rules – next slide • Section M, Changes on childcare exemption

22. CALCULATING THE CASH EQUIVALENT Cash Equivalent?

23. HMRC GUIDANCE • CWG5 (Class 1A NICs) • Appendix 1, Common Benefits • 480 Expenses and Benefits • 27 Chapters and 11 Appendices of advice • Chapter 5 for non-taxable payments and benefits • P11D Guide • 490 Employee travel • CWG2 Employer further guide to PAYE and NICs • Chapter 5 guidance on when PAYE/NICs due

25. HMRC GUIDANCE • P11D working sheets to help calculate the cash equivalent of the following benefits in kind: • Living accommodation • Car and fuel benefits • Company vans • Interest free loans • Relocation expenses and benefits • Mileage allowance and passenger payments

26. EXPENSES AND BENEFITS A to Z • http://www.hmrc.gov.uk/paye/exb/ • Expenses and benefits: W • Workplace nursery • Water rates or charges for living accommodation • Welfare counselling • Working from home - office equipment and supplies • Works bus services • Workshop equipment and supplies

27. CALCULATING THE CASH EQUIVALENT Amount paid by employer (or third party) on employee’s behalf Matches entry on tax returns 15 1A 15

28. CALCULATING THE CASH EQUIVALENT • P11D employee or director • Cost to employer • Or any third party provider! • P9D employee • Second hand value • N.B. There are some exceptions • Company car and fuel benefits • Company van benefits • Living accommodation • Vouchers

29. VAT ALL EXPENSE PAYMENTS AND BENEFITS IN KIND MUST BE REPORTED ON THE P9D OR P11D ON A VAT INCLUSIVE BASIS

30. MAKING GOOD Section 203(2) ITEPA 2003 • The legislation does not set a time limit on the "making good". This will usually happen shortly after the expense is incurred by the person providing the benefit. But you need not object to a belated "making good" if it is done within a reasonable time of the employee becoming aware that the chargeable benefit can be reduced, in whole or in part, by reimbursing the expense incurred by the provider. What constitutes a "reasonable time" will depend on the facts of the case. Do not allow a deduction for "making good" which takes place after a charge to tax on the benefit concerned has become final and conclusive.

31. 1A A. ASSETS TRANSFERRED • Have any company owned cars been sold or given to a director or employee? • Was the price paid the market value and can you prove that? • Any other assets sold or given to a director or employee? • Painting • Clothes • Office equipment • Bicycles?

32. C. VOUCHERS AND CREDIT CARDS • Report value of vouchers and credit card payments • Report expenses etc. using credit cards or tokens, but • ONLY amounts not reported elsewhere • Section M or N? • Taxable Childcare vouchers reported here • Taxable Childcare (Employer Contracted) Section M

33. E. MILEAGE ALLOWANCE AND PASSENGER PAYMENTS

34. APPROVED MILEAGE PAYMENTSEMPLOYEE CARS • Have employees kept cumulative business mileage claims and was the 45p rate reduced to 25p after 10,000 miles? Example • Christine was reimbursed 45p for all business mileage • Christine claimed 14,808 business miles • Reportable excess is 4,808 x 25p = £1,202 • £1,202 excess to be reported at P11D Section E

35. APPROVED MILEAGE PAYMENTSEMPLOYEE CARS • If an employer reimburses less than the AMAP rate • Employees can claim additional tax relief • Employees can claim the ‘difference’ between the amount reimbursed and the authorised amount • Example – Employer reimburses 25p per mile • Employee can claim the additional tax relief due at 20p per mile up to the 10,000 business miles limit • Claim 8,285 miles @ 20p (45p - 25p) = £1,657.00 • Tax claim @ 20% = £331.40 • Tax claim @ 40% = £662.80 • Tax claim @ 50% = £828.50

36. 1A F. CARS (9) AND CAR FUEL (10) • The information to be reported is: • Make and model of the company car • Date the car was first registered • Approved CO2 emissions figures [g/km] • www.vca.gov.uk • www.smmt.co.uk • Engine size [cc] • Type of fuel/power used [?] • Dates car was available

37. SECTION F CAR BENEFIT CHANGES • There will only be three letters to describe cars • E for electric only cars (as before) • D for all diesels (previously types D and L), and • A for all other types (previously types H, B, C, G & P) • There will no longer be any reductions for alternative fuels • The diesel surcharge will apply to all diesels, whenever registered

38. FUEL POWER KEY

39. SECTION F CAR BENEFIT CHANGES • The £80,000 limit for the price of a car for car benefit purposes no longer applies (from 2011/12) • Expensive cars will now be taxed at their full List Price Example • 2010/11 List Price £120,000, assume 35% CO2 • Car benefit price capped at, £80,000 x 35% = £28,000 benefit • 2011/12 List Price £120,000, assume 35% CO2 • Car benefit on List Price of £120,000 x 35% = £42,000 benefit • Exclusion of certain security related costs!

40. SECTION F COMPANY CAR BENEFIT CHANGES • Lower CO2 threshold (15% rate) reduced from: • 130g/km to 125g/km • Lowest appropriate percentage is 0 per cent • Applies to cars with CO2 emissions of zero • Cars with CO2 emissions of less than 75g/km have an appropriate percentage of 5 per cent • Cars with CO2 emissions of 76g/km to 120g/km have an appropriate percentage of 10 per cent • Thereafter the rate is 15 per cent increasing by 1 per cent for every 5 g/km to the current maximum of 35 per cent • Emissions of 225g/km and above

41. 1A F. CARS (9) AND CAR FUEL (10) • Only use boxes when cars first provided or cease to be provided, or • Where there is a change of car in the tax year • Car unavailable before it is first provided • Car unavailable after it is withdrawn • Car treated as unavailable if the car is unavailable for periods of 30 consecutive days or more • Car not treated as unavailable if employee is: • banned from driving, or • out of the country on business or holiday, or • unable to drive the car for another reason e.g. illness

42. 11 06 11 06 04 11 10 06 11 05 04 12

43. 1A F. CARS (9) AND CAR FUEL (10) • The list price is the inclusive price published by the manufacturer, importer or distributor if sold singly in a retail sale in the open market in the UK on the day before the date of the car’s first registration • List price includes: • VAT, car tax, customs or excise duties and delivery charges • List price excludes: • New car registration fee (admin charge)

44. 1A F. CARS (9) AND CAR FUEL (10) • List price of each company car • Including standard accessories, plus • List price of all non-standard accessories • Ignore later provided accessories if cost below £100 e.g. mud flaps • List price probably not the price paid for the car • Ignore discounts and second hand price • Use manual price for automatic car provided to a disabled employee • Booklet 480, paragraph 12.7

45. 1A 1,450 600 • Capital contributions reduce the list price of the car for employee making the contribution • Up to a maximum of £5,000 • Might be paid for accessories e.g. tow bar • Not transferable to different employee • Private use contributions reduce the company car benefit on a £1 for £1 basis • There must be a requirement to make payments as a condition of the car being available for private use, and • Payments must be specifically for that private use • Payments for supplies or services e.g. petrol or insurance • Do not qualify as private use contributions

46. 1A F. CAR FUEL SCALE CHARGE (10) • A car fuel benefit charge will apply if any fuel is provided for a company car, Unless: • The employee is required to and does make good the full cost of any private fuel, or • Fuel is only made available for business mileage and that can be proven! • Employees can make good the cost of ALL private fuel by payment or reinstatement, but • Employers may have to prove to HMRC that procedures have been in place to ensure that no ‘free fuel’ has been provided

47. SECTION F COMPANY CAR FUEL BENEFIT CHANGES • The company car fuel benefit multiplier has increased from £18,000 to £18,800 • The maximum car fuel benefit has increased from: • £18,000 x 35% = £6,300, to • £18,800 x 35% = £6,580 • Further increases likely • Even more important to check value of ‘free fuel,’ and • Avoid ‘accidental’ fuel scale charges

48. HMRC TARGETS • Employment Status and Casual Labour • Fuel scale charges • Home to work travel • Long service/retirement awards • Salary Sacrifice Schemes • Share Schemes • Staff entertaining • Termination Payments

49. FUEL SCALE CHARGES Company Car Fuel Scale Charges • An HMRC spokesman commented: “Employers should have appropriate systems in place to verify that any business mileage claims made by their employees can be paid free of tax. Should such claims turn out to be false, both the employer and employee may be liable to action taken by HMRC.” • Recent research revealed that 72 per cent of respondents suspect that their drivers overestimate mileage claims on a regular basis. This is coupled with the revelation that only 50 per cent of firms routinely double check the accuracy of claims. More than one in 10 believe that the practice of inflating mileage is routine

50. FUEL SCALE CHARGES Company Car Fuel Scale Charges • Avoiding a fuel scale charge means not providing ‘free fuel’ • Intentionally or unintentionally! • Business mileage recording is the first point to address • If the employer ensures that proper mileage records are maintained and checks them? • Next we must ensure that the correct amount of fuel is provided • Using HMRC’s Advisory Fuel Rates is the ‘safe bet!’