P11D mistakes could cost firms up to £3,000 per incorrect form, warns KPMG
1 Jul 08
While filing file P11D forms any later than 4 July this year will result in employers receiving a £100 penalty from Her Majesty’s Revenue and Customs (HMRC), a mistake on a P11D form could cost them 30 times as much, warns KPMG
£3,000 is the maximum penalty HMRC can impose for an incorrect P11D form. But the pain for the employer does not end here. As such a penalty can also lead to an increased “risk profile” with HMRC, potentially affecting the way in which HMRC deals with the firm concerned in the future.
John Chaplin, employment tax director at KPMG in the UK, said: “Historically HMRC have not levied the fines and penalties available to them other than in exceptional circumstances. However, we suspect this may well change this year as under a new ‘risk-based’ approach, we are seeing tax inspectors taking a much more adversarial stance and showing a greater appetite for imposing stricter penalties”
And as the fine is per incorrect form submitted, the penalties can soon add up.
“Potentially, an employer could find themselves being fined over and over again for the same mistake if they have made it repeatedly on a number of employees’ P11Ds,” continued John Chaplin.
The deadline for submitting P11Ds is always 6 July. But as that falls on a Sunday this year, the effective deadline is Friday 4 July.
Getting it right
Whilst it is important that the returns are submitted on time, it is arguably even more important that they are correct. In order to help companies get their P11D returns right, KPMG has compiled a list of the most common errors leading to P11Ds being incorrectly filled out:
-
Forms completed which are not in line with an agreed HMRC P11D Dispensation Notice, for example entertaining and travel and subsistence. You are required to declare all benefits and expenses payments not covered by a P11D Dispensation Agreement for appropriate employees. Ensure your agreements are up to date and replicate expense policies – we recommend these are revisited every 3 years. In cases where your Agreements are not up to date, HMRC can back-date the revocation of the Dispensation rendering your P11Ds incorrect.
-
Incorrect list and accessory prices for company cars leading to incorrect company car benefits. Incorrect list prices can lead to under/overpayments of tax and Class 1A National Insurance Contributions. The list price is the inclusive price published by the manufacturer and includes all standard accessories, relevant taxes, delivery, etc. It is not the dealer's advertised price or price paid for the car which could include discounts and cashbacks. Later accessories added to company cars which exceed £100 should be included on forms P11D. These could include alloy wheels and, in some cases, satellite navigation systems.
-
CO2 emissions data not taken from the V5 registration document for company car/fuel scale benefits. Cars first registered in the UK from 1 March 2001 (most company cars fall into this category) will have an approved CO2 emissions figure on the Vehicle Registration Document (V5). This figure will form the basis of calculating both car and fuel benefits.
-
Entertaining expenses. Unless the dispensation specifically mentions staff entertaining, these costs should be reported. Many employers submit incorrect P11Ds which either don’t report staff entertaining or incorrectly show that client entertaining has been disallowed in the employer’s accounts (by putting a cross in section N). This can lead to a full HMRC enquiry into entertaining expenses including the corporate tax and VAT treatment.
-
No private use reported for the private use of company vans. Where vans are taken off your premises overnight by your employees a van scale charge may be imposed of £3,000 regardless of the van’s age as HMRC will assume that the vehicle is being taken away for private use. The only way to eliminate this charge is to completely satisfy some quite onerous requirements to prove that there is no private use. If you have vans, it is worthwhile reviewing the terms of their usage annually before submitting P11Ds.
-
Mileage allowance payments in excess of HMRC's Approved Mileage Allowance Payments (AMAPs). Mileage payments reimbursed to employees using their own cars in excess of the AMAP rates (currently: 40p for the first 10,000 miles and 25p thereafter) are fully reportable on forms P11D. Errors often occur where business mileage in an employee’s own car is over 10,000 miles in the tax year.
-
None reporting of assets transferred to employees or being used privately by employees. Often, benefits are not reported where an employee benefits from the transfer of an asset at less than its market value (such as cars and computer equipment). Make sure you have assessed the benefit for tax purposes correctly, taking in to consideration the sum paid (if any) and the correct market value.
-
Calculation of employee beneficial loans. Identifying the purpose of the loan is essential. Is it a 'qualifying' loan, in which case the tax treatment may be different? Have you assessed the amounts correctly and applied the method of calculating the loan, making elections, as appropriate. The HMRC website has some information about qualifying and non-qualifying loans here, but if in doubt, you need to talk to a tax adviser.
-
Variances in reporting items leading to inaccurate payments of Class I and Class 1A National Insurance Contributions. Identifying items to 'fit' the appropriate box can be difficult to assess. Make sure you have applied Class 1 NIC on pecuniary liabilities (bills in the employees’ own names) and assessed benefits liable to Class 1A NIC in line with HMRC guidance.
-
Incorrect treatment of relocation payments. Legislation is specific and only applies to 'qualifying' expenses as well as a change to the employee's main residence. Make sure you have assessed each employee’s individual circumstances in applying the £8,000 maximum tax-free allowance – do not simply assume that they will qualify for a blanket payment of this amount.