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P11D’d off

Apologies for the radio silence of the last few days, but P11D season had a little sting in its tail for me.

Issues surrounding P11Ds come up in recurring questions on accountancy and tax message boards. The basic idea is simple: any benefits supplied by an employer to an employee should be reported, just like salary, and any resultant Class 1A National Insurance paid over. However, it has become one the most complex areas of reporting for firms, and not just those who attempt to ‘pay’ their staff in fine wines or gold bullion.

The two forms in question are P11D(b) and P11D. The P11D(b) essentially provides the total of liable benefits and, therefore, the total Class 1A liability which is 12.8% of this. Each P11D details the benefits (liable and non-liable) for a relevant employee, the usual being company cars, BUPA, low-interest loans (particularly for directors) and reimbursed expenses. The deadline for submission of the forms is 6 July, and the deadline for payment is either 19 or 22 July, depending on your payment method. So far, so simple.

Who has to do these forms? There are three reasons for doing so:

  1. you tick the box on the P35 which states you will submit P11Ds in due course
  2. you receive a P11D(b) from HMRC
  3. you have awarded reportable benefits to any employee

It is the penalty regime where unwary employers can really get stung. Laying aside the potential fines for incorrect forms, late submission attracts a penalty of £100 per month or part month, plus the same again for each 50 relevant employees.

The problem is, it is difficult to know whether or not HMRC were expecting a return, and difficult to check that it has been received, as PAYE office lines are regularly engaged or have long hold queues. HMRC don’t usually issue penalty notices until November, by which time the penalties are a minimum of £400. Cue lots of irate employers badgering HMRC and agents about a hefty fine – particularly if no P11Ds were due in the first place!

So, what are TaxManDan’s top tips for avoiding a crippling penalty?

  1. Don’t automatically tick ‘yes’ to the P11D question on your P35. In fact, I’d go so far as to say tick ‘no’ regardless: I haven’t yet heard of anyone penalised for ticking ‘no’ and then submitting P11Ds
  2. If you don’t need to submit P11Ds, deposit a signed nil P11D(b) with HMRC, either by post or in person at any tax office
  3. If your return isn’t nil, submit online, either using a commercial product or HMRC’s Online Services. This avoids any potential problems with postal delays and should provide irrefutable proof of submission. (Inability to file nil returns online should have been in the running for being a Millennium Prize Problem)
  4. If you’ve missed the deadline date, get it in as soon as possible. There seem to be two grey areas you could take advantage of:
  • ESC B46 may apply: a submission within a week’s grace period (technically by the last working day within seven days of the deadline) should not result in a penalty. However, HMRC seem to suggest this doesn’t apply to P11Ds, and will be withdrawn from 2011 anyway
  • some forms and guidance state that penalties (or automatic penalties) apply after 19 July, so prevailing wisdom is that forms received by then may also escape a penalty. For example, see page 11 of CWF5, or page 3 of E10. (The relevant law is in SI2001/1004 para 81(2) and seems to support this)
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