Labour Saving

Hopefully, by the time you read this, you have sent your P9D, if any, and P11D returns to your tax office. Your Class 1A NICs liability will be calculated and ready to pay to the Collector by 19 July.

So much for this year! Now is the time to start planning your returns for next year. But, before we get to the real point of this article, there are three important things to remember about P11D reporting.

The Golden Rules

First, if you don't already have them, dispensations are by far the best way of reducing the workload. A dispensation from your tax office may cover all travel and subsistence payments, payments using credit cards, and payments of mileage allowances, entertainment expenses, business telephone calls and professional subscriptions. As long as the conditions defined in the dispensation are satisfied, nothing need be reported on P11D returns.

Second, there is also no reporting requirement where employers settle the tax liabilities on benefits under PAYE Settlement Agreements. However, as PSAs are very expensive, employers are not likely to pay their employees' tax simply to reduce the P11D reporting workload.

Third, just like the annual P14 and P35 payroll returns, getting the expenses and benefits returns correct after the year-end involves careful work throughout the year, not just a blitz every June in order to meet the July deadline. Details of changes to company cars are commonly recorded during the year, but it is also essential to keep a track of any payments that are not covered by your dispensations. Critically, such payments may incur a Class 1 NICs liability that may only be handled through the payroll at the time of payment, even though they are reported much later on form P11D for tax purposes.

Dedicated Technology

The concept of managing benefits and expenses throughout the year leads precisely into the advantages of computerising the process. Many employers already use spreadsheets to keep on-going records, which are used to compile the returns after the year-end. As P11D reporting is a complex area of compliance in its own right, it makes sense to consider using dedicated P11D software, not simply to record and report the benefits, but also to ensure that nothing is missed and that the cash equivalent value of benefits is correctly calculated. A good P11D system has the same advantages and disadvantages as a payroll system; the returns are more accurate and quicker to produce, but the users may not know exactly what they are doing. This is not to suggest that you don't need any P11D experience to use P11D systems. You do, but a good system will limit the scope for mistakes and provide extensive textual help.

There are a number of specialist P11D systems on the market. Contact information for the suppliers and some basic prices are included with this article. Alternatively, many payroll developers and some personnel system developers provide optional P11D modules, usually at extra cost. If you use a payroll service provider, the bureau or accountancy firm almost certainly includes P11D preparation as an optional, chargeable, extra. However, there is nothing to stop you running your own P11D software in-house, if you can identify the benefits of doing so, but continuing to use an external service provider for your payroll.

Money Matters

Cost is a significant issue. The charges of many suppliers, but not all, increase according to the number of forms produced, with starting prices from around £200 upwards. It may not be economical for employers who have to complete just a few forms. However, it should also be noted that many suppliers have lower upgrade prices for the following years.

So, in what ways could a P11D system help you? And what functionality should be expected from such systems? A checklist is provided alongside but must be understood in context. Just as a computerised payroll system is much more than a payslip-producing machine, so a P11D system should be viewed as more than just a means of printing statutory returns. A good system will have the capacity to help an organisation manage the costs of the benefits it provides, control the level of expenses paid, and provide valuable input into decision-making on the benefits package.

Buyer Checklist

1) Does the system perform all calculations, not just those requiring the special working sheets, i.e. accommodation, cars, vans, loans and relocation? For example, when considering whether to report a computer as an "asset placed at the employee's disposal", does the system calculate the "annual value" of the asset and then decide whether it exceeds the statutory threshold or not? Or does the user have to perform the calculation and make the decision?

2) Does the system allow users to define and produce their own reports, including personalised employee letters and benefits statements that may be printed, sent by e-mail or accessed on an intranet? Some systems produce copy P11Ds for employees; others list just the items that are taxable on each employee. If you like to send out copy P11Ds early, to get feedback from your employees before the returns are finalised, does the system support that?

3) Not many of the systems on the market produce P9Ds. That may not be a problem if you do not have any employees who earn at a rate of less than £8,500, including the value of any benefits provided or expenses paid to them during the year. If you need to produce P9Ds, look for a system that allows the earnings of employees to be imported from the payroll system and uses those earnings figures to decide whether to produce a P11D or a P9D for each employee. Remember that many benefits, e.g. private medical insurance, are not taxable on employees earning at a rate of less than £8,500.

4) Some systems provide facilities for managing the car fleet that go beyond the reporting of car and car fuel benefits. This may be useful for employers that do not have their own fleet administration system. As well as calculating the cash equivalent values of cars and fuel, the system should produce P46(Car) forms for reporting changes to cars throughout the tax year and provide for the recording of private and business mileage.

5) With the changes in the tax year 2000/01 to Class 1A NICs, all systems should calculate the employer's Class 1A liability and produce either a P11D(b) facsimile or a report with the necessary figures for completing the return.

6) Does the system produce "Section 198" letters (so called because section 198 of the Income and Corporation Taxes act 1988 allows tax relief on expenses that are incurred "wholly, exclusively and necessarily in the performance of the duties of the office or employment")? These are generated by some systems, allowing employers to claim tax relief on behalf of their employees where the benefits provided are not covered by dispensations.

7) Does the system allow details of dispensations and PAYE Settlement Agreements to be recorded, so that payments covered by them are not reported?

8) Can the system be used day-by-day throughout the year to record payments and benefits at the time they occur, rather than having to collate them after the year-end? Some systems have full expenses management facilities with links to financial ledgers.

9) Does the system provide for the filing of P11D returns by magnetic media? What are the developer's plans for providing electronic submission over the Internet?

10) How does the supplier provide statutory support? Is there a telephone Helpline and does the system itself provide extensive contextual help, including the Revenue manuals?

11) When setting up the employee records for a new tax year, can information from the previous year be rolled forward? Does the system provide import and export to/from spreadsheets and other systems in common file formats? Can common benefits be allocated to different groupings of employees?

12) Does the supplier provide a demonstration version before buying?