Introduction »

Toolkit terrors

HMRC have issued a reminder about the various ‘toolkits’ they have developed to assist those who prepare returns. The toolkits highlight common errors and the steps that can be taken to reduce those errors. They continue to emphasise that the main risk area in each toolkit is record keeping – or the lack of it!

However, the ‘Expenses and Benefits from Employment Toolkit’ can be particularly useful to owner managed companies and unincorporated businesses that employ staff. It identifies four main categories of risk:

• personal bills
• company cars and vans
• travel and subsistence and
• use or transfer of assets.

Personal bills

The point here is really very simple but not as easy as it sounds - have any personal costs of the directors/employees been identified and either repaid or included on a form P11D?

HMRC state:

‘Benefits or assets provided and expenses paid to or on behalf of a director or employee may give rise to employment tax charges but the correct treatment can vary considerably.’

An understatement if ever there was one. Of course, you have to spot them in the first place to then treat them properly.

Company cars

Common errors include using the wrong list price, not including the cost of any qualifying accessories, using the wrong CO2 emissions figure, and ‘mechanical’ calculation errors.

In addition, company cars include cars leased or acquired on hire purchase by an employer, not just bought outright.

And, of course, cars provided for non-employee family members are taxable on the employee!

Company vans

The standard van benefit charge is £3,000 but this can be reduced to nil only where both of the following requirements are satisfied:

• the van must only be available to the employee for business travel and commuting – it must not be used for any other private purpose (except to an insignificant extent)
• the van must be available to the employee mainly for the employee’s business travel.

This begs several questions. Is private use other than ordinary commuting prohibited? Is mileage monitored to prove there is no private use? And, most importantly, how can any of this be proved?

Travel and subsistence

The rules for travel and subsistence are the most common ‘benefit’ that employers provide but also the most complex. HMRC explain them in a 100 page booklet, IR490.

Payments for travel and subsistence to a permanent workplace or round sum subsistence payments are all broadly taxable. Relief may be available by exemption or deduction for the cost of business travel where the expense is incurred in the actual performance of the duties of employment.

However, if round sum payments are made, the full amount should usually be added to the directors’ or employees’ earnings and PAYE and National Insurance Contributions deducted.

The most important easement in this area is a dispensation to effectively exempt approved travel costs. Have you got one and is it up to date?

Use or transfer of assets

Where an asset is provided for private use or given to an employee, a tax change will normally apply. There are exemptions for things like a mobile phone (although HMRC may challenge whether a smart phone falls within the phone exemption!) and for insignificant private use of assets, for example, a computer.

As you can see, the world of P11Ds is a minefield. Do your policies need a healthcheck? You can never have enough good policies. Please get in touch if this is an area you would like to discuss further.

Introduction »