All of this can make the run-up to 6 July a busy, and potentially stressful, period for employers. Indeed, in their consultation paper on payrolling benefits in kind, HMRC revealed that the annual P11D and P9D reporting process has been identified by the Institute of Payroll Professionals (IPP) and the Administrative Burdens Advisory Board (ABAB) as being one of the most costly burdens imposed on business.
There are three returns in the expenses and benefits return stable – forms P11D, P9D and P11D(b).
Form P11D is perhaps the most well-known. It is the return of expenses and benefits provided to employees earning at a rate of at least £8,500 a year (P11D employees) and to directors, regardless of their level of earnings. Where a taxable benefit is provided to a P11D employee or to a director, the cash equivalent of that benefit is reported in the relevant section of the P11D. Guidance on completing the P11D can be found on the HMRC website at www.hmrc.gov.uk/paye/reporting-p11d.htm.
The P11D serves two purposes. The information reported on the P11D enables HMRC to review the employee’s tax position and the collect the tax due on expenses and benefits via and adjustment to the employee’s tax code. The cash equivalent values entered on the P11D also form the basis of the computation of the employer’s Class 1A National Insurance liability.
Form P9D is a much simpler form. It is used to record those expenses and benefits that are taxable when provided to employees earning at a rate of less than £8,500 year. In calculating whether the £8,500 threshold is exceeded, the cash equivalent of any benefits provided to the employee must be taken into account, regardless of whether these are ultimately taxable. Under the benefits legislation, the majority of benefits are only taxable when provided to P11D employees and directors.
Employees in excluded employments (i.e. those with an earnings rate of less than £8,500) are only taxed on the limited range of benefits taxable under the all-employee legislation (predominantly vouchers and living accommodation). As with the P11D, information on the P9D is used by HMRC to review the employee’s tax position and to adjust the tax code if necessary. However, no Class 1A National Insurance liability arises in respect of benefits provided to P9D employees and as such the entries on the P9D are not taken into account in computing the employer’s Class 1A National Insurance liability. Guidance on completing form P9D is available on the HMRC website at www.hmrc.gov.uk/paye/reporting-p9d.htm.
The final form in the set is form P11D(b). This serves two purposes. It is both the employer’s declaration that all required P11Ds have been submitted and also the statutory Class 1A National Insurance return. Class 1A National Insurance contributions are employer-only contributions.
The liability arises in respect of most taxable expenses and benefits provided to P11D employees and directors and returned on forms P11D. Generally, the Class 1A National Insurance liability is calculated in section 1 of the P11D(b). The benefits and expenses which attract a Class 1A National Insurance liability are those that appear in the brown boxes with `Class 1A’ indicators the P11D.
To calculate the Class 1A National Insurance liability the employer needs to add together all the entries in the Class 1A boxes for all the P11Ds completed for the tax year in question. The Class 1A percentage (12.8 per cent for 2007—08) is then applied to the total to arrive at the employer’s Class1A National Insurance liability for the year.
In certain circumstances the cash equivalent total taken from the P11Ds may need adjusting, for example to reflect benefits liable to Class 1A National Insurance contributions not shown on the P11D. Where adjustments are required, the Class 1A liability is computed in section 4 of the P11D.
Avoiding Common Mistakes
It makes life easier all round if the forms are submitted correctly first time. To help employers achieve this, HMRC published a list of common errors in the April 2008 issue of Employer Bulletin. Return can be processed faster if employers:
· make sure entries are clear and legible;
· use a font size that is clear and readable;
· show the employee’s National Insurance number, date of birth and gender;
· do not show CO2 emissions for electric cars (type E);
· only complete the `dates car available from’ box if the car was first made available in the tax year;
· only complete the `dates car available to’ box if the car was withdrawn in the tax year;
· only complete the `date loan was made ‘ box if the loan was made in the tax year; and
· only complete the `date loan was discharged’ box if the loan was discharged in the tax year.
Employers should review returns to ensure that they have not made any silly mistakes prior to submitting the forms. Penalties may be charged for incorrect returns and this can prove costly, especially if the same errors are repeated on each return.
As noted above, forms P9D, P11D and P11D(b) for 2007—08 should reach HMRC no later than 6 July 2008. Penalties may be charged for returns submitted late. Employers must also supply employees with a copy of their P11D or details of the information that it contains, for example in list form, by 6 July 2008.
Class 1A National Insurance contributions for 2007—08 must be paid by 19 July 2008, unless payment is made by an approved electronic means, in which case a later deadline of 22 July applies. HMRC must have cleared funds by this date for the payment. Interest is charged on Class 1A National Insurance contributions paid late.
Submission Of Forms
Forms P11D, P9D and P11D(b) can be filed online using the PAYE online service. This is not compulsory, but employers familiar with the service may find it easier and quicker to submit forms in this way. Forms can also be filed online using commercial third party software. If the software package does not support online filing, it may provide for the preparation of returns, which can be printed off and posted to HMRC.
The Employer CD-ROM sent out free to all employers contains form-filling software and allows for the forms to be completed on screen and printed off for posting to HMRC.
The final option is to submit paper forms, which are completed manually. Paper returns can either be downloaded from the HMRC website (see www.hmrc.gov.uk/employers/emp-form.htm#0x2) or ordered from the employer orderline (0845 7 646 646).
Although the annual P11D process is something of an institution, HMRC are considering whether there is a better way. At the end of last year they published a consultation paper which proposed including expenses and benefits within the payroll and abolishing the £8,500 threshold in a bid to make employer’s lives easier. The consultation period has now ended and HMRC are considering the responses. It may be that the future is P11D-free.