As part of their year end procedures many employers need to prepare P11D’s for their employees. These forms record benefits that the employer has provided to almost any employee. They include not just obvious benefits like a company car or private medical insurance but also less obvious benefits like re-imbursed travelling expenses.
The legislation applies to all employers, not just large businesses so, one-man companies such as a Computer Contractors, IT Consultants, Management Consultants etc.. have the same requirements to consider as a company with a thousand employees. The system is policed by penalties and so Contractor Accountants who assist with the affairs of many one man companies are often particularly busy between 6th April and 5th July each year collecting information from their clients and filing returns.
For many years, large employers have been able to apply for dispensations to cover expenses where it is accepted by HMRC that no liability arises. So, for example, an employer who has a dispensation will still have to complete a P11D for employees who have company cars, but he won’t have to record details of reimbursed travelling or subsistence expenses. Often HMRC will agree to round sum expenses being paid. However, HMRC have routinely turned down requests made by one man companies such as computer contractors simply because it is not practical to have any form of internal checking of expenses within the company itself.
All of this has changed from 6th April 2011. HMRC will accept requests for dispensations from one-man companies. The applications can be submitted online by the employer or their agent. So Contractor Accountants can apply for dispensations for their computer contractor clients.
Dispensations are now routinely issued to cover expenses such as:
a) travelling expenses excluding normal commuting;
b) subsistence and accommodation expenses incurred in connection with travelling;
c) telephone costs in connection with business calls identified from an itemised bill; and
d) entertaining costs.
Although strictly speaking a dispensation applies from the date approved, if a contractor applies now HMRC will treat the dispensation as applying from 6th April 2011.
Of course employers who apply for a dispensation need to ensure that they comply with its terms. Usually for a Computer Contractor this means:
a) recording on a P11D any benefits not covered by the dispensation such as private medical insurance;
b) avoiding round sum expense payments such as £5 for lunch; and
c) retaining receipts for all re-imbursed expenses.
For those who choose not to apply for dispensations there is likely to be a nasty surprise in the not too distant future. HMRC have set out their view that if an employer reimburses an employee for an expense, the reimbursement should be taxed through the PAYE system and then the employee should claim relief on his tax return. This procedure is not tax neutral because National Insurance will be due on the reimbursement.
We at Warr & Co have already commenced applying for dispensations for our various freelance contractors clients – make sure your accountant does the same.
Finally please email a question you may have on the above to the team at Warr & Co using the link below. http://www.warr.co.uk/contact/