Introduction »

P11D pitfalls

Trying to get all benefits correctly treated on a P11D can be a minefield but there are several common areas which HMRC will focus on. We look at a few of these below.

Business and staff entertaining

Business entertainment is not an allowable deduction for a business. This means entertainment (including hospitality of any kind) provided by a person, or by a member of his staff, in connection with a trade carried on by that person.

However, staff entertainment is a legitimate business expense except where:

• the provision of staff entertainment is incidental to its provision for customers, or
• the expenditure is not wholly and exclusively for the purposes of the employer’s trade.

As an allowable business expense, staff entertainment should instead, unless specifically exempted be included as a benefit on form P11D and so taxed on the employee. Alternatively, arrangements can be put in place for inclusion in a PAYE Settlement Agreement. Specific exemption is available for staff annual functions which do not exceed a total amount of £150 annually per person.

Disallowance or benefit?

The difference in establishing whether entertainment is staff or business related is critical to the tax impact and explains why HMRC are likely to check this area for correct treatment.

If it is business entertainment, the disallowance on a small company only creates additional tax of 20%, whereas tax on an employee benefit could be as high as 50% plus 13.8% employer National Insurance Contributions (NIC).

Company credit cards

Credit cards are often troublesome. Commonly, it is the directors who have the cards and all sorts of private expenditure can find its way onto the bills.

Detailed reviews of credit card statements are required, not merely sample checks to identify all private payments and to ensure that they have been correctly treated for income tax and NIC purposes.

Subsistence

It is very common for employers to reimburse expenses for subsistence when employees are away from the office. HMRC often use a rule of thumb that expenses are only allowable where the employee is away from the office for more than five hours and the journey is more than five miles away. A problem can arise particularly in larger organisations where employees do not need to claim travel expenses as the employer has arranged the tickets or transport on the employee’s behalf. In these situations, HMRC may state that they are unable to identify where the individual was and, therefore, they may treat the reimbursed expense as being taxable.

They may also seek to tax subsistence payments where no related mileage claim is submitted. It could, however, be the case that the employee travelled in a car with a colleague who has claimed mileage. It will be clear from this that sufficient narrative should be given on the expenses claim form to show where the employee was located.

So, clear policies and procedures will always help save tax. Are yours fit for purpose? Contact us for help.

Introduction »