P11D dispensation agreements were abolished for the 2016/17 tax year onwards, replaced by a general expense exemption meaning reduced reporting requirements for many. Understanding and abiding by the revised rules in these situations is important, to ensure ongoing compliance and avoid penalty.
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!