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P11D Software
Expenses and benefits returns P11D and P9D for 2002/03 are due by 6 July 2003. Which of the two forms is completed for each employee depends on whether they earned at a rate of more than £8,500 during the tax year, or less than £8,500.
Unlike the precise rules for the calculation and reporting of PAYE tax and Class 1 NICs, the completion of expenses and benefits returns is not an exact science and can be a very time-consuming process. Perhaps the best way to save time and remove uncertainty is to cover all business-related expenses and benefits with a dispensation, accompanied by a clear and enforced set of policies and procedures covering expenses payments.
Can P11D software help?
The next best way to simplify the reporting requirements is to use one of the various specialised expenses and benefits software systems on the market. In comparison with the almost universal use of payroll software by all but the smallest employers, P11D software tends to be used by employers with many forms to complete, or by those with more complex reporting requirements.
The most effective and accurate method of P11D reporting is to maintain the necessary records throughout the tax year. Instead of having to try to find all the information, much of it a year old, in order to complete the returns, good P11D software provides the means of collecting, recording and managing the provision of expenses and benefits throughout the tax. As a result, the year-end task is reduced to printing off the forms and checking them carefully.
But, to what extent can P11D software help employers meet their compliance obligations? Accurate P11D and P9D returns depend on three important factors:
- everything that does not need to be reported is not reported
- everything that should be reported is reported
- everything reported is correctly calculated.
Compared with PAYE, calculating the cash equivalent value of a benefit is generally straightforward. P11D software packages usually calculate automatically the value of benefits such as company cars, loans and living accommodation, drawing on information already recorded in the system.
Of greater importance, however, is ensuring that all of, and only, the necessary items are entered. Knowing where to go in a business to find the details to be reported is essential, but of no use at all if the person completing the forms is not aware of all of the benefits that are provided. Conversely, knowing what items must be reported is not helpful in the absence of a clear understanding of the many extra-statutory concessions and statutory exceptions that allow many benefits to go unreported if the qualifying conditions are met.
Can P11D software help in these areas? Is a detailed knowledge of the complex reporting rules necessary? The developers of P11D software have differing views. There is no doubt that simply having a P11D system raises the awareness of the users to the areas of interest. Most suppliers operate a helpline and some arrange in-house or external training courses.
Some P11D systems claim to have everything needed to ensure full and accurate reporting, and provide extensive contextual help and reproduce the Revenue and other guidance manuals. Other suppliers take the view that only the technical aspects of the system are their responsibility and that the client's professional adviser should provide guidance on the benefits to be reported and their values. There can be no doubt, however, that a P11D system by itself is not going to guarantee compliance. If the information entered is incomplete or inaccurate, the output will also be deficient.
Integration with payroll
Few payroll or HR systems offer facilities for completing forms P11D and P9D. Most P11D software, however, offers some level of integration with payroll and HR information, even if it is only the facility to import and export related employee data. There are two situations where there are important reporting links between P11D and payroll systems.
The first relates to the completion of form P9D. An employee's P60 earnings are required to determine whether or not the £8,500 threshold has been exceeded. Some P11D software allows that information to be imported so that the system can determine automatically whether form P11D or P9D should be produced. This is a useful facility for employers that provide benefits for part-time employees.
The second situation is the liability of employers and employees to pay Class 1 NICs on some payments and vouchers for which there is a year-end P11D or P9D reporting requirement. If there is a liability for Class 1 NICs, it arises in the earnings period in which the payment is made or the voucher is provided. The latest situation where such liabilities can arise is the payment of mileage allowance payments. Even if there is no taxable benefit to report at the year-end, a liability for Class 1 NICs arises if the total payments in an earnings period exceed the maximum exempt amount for that earnings period. One P11D software developer reports that, in developing the functionality required to handle the tax reporting aspects of mileage allowance payments, their system also passes information to the payroll in each earnings period where there is a Class 1 NICs liability.
Standards
There are no defined standards for P11D software as there are for payroll systems, other than the precise format of printed P11D and P9D forms and their electronic equivalents for submission by magnetic media, over the Internet, or by Electronic Data Interchange. As a result, the forms produced by all P11D software must meet the Revenue's specifications. Otherwise, the systems differ considerably in terms of design and functionality, some offering car fleet management capabilities or facilities targeted at public sector organisations.
Employers with only a few returns to complete are likely to find most P11D software uneconomical, although one supplier now offers a system free to employers with up to 10 employees. It is also notable that the Inland Revenue has entered the market, offering a simple database and interactive returns and working sheets on this year's CD-ROM. Details of most of the suppliers of P11D software and the first year costs of their systems are provided on the accompanying table.
Changes to P11D Reporting
There are two significant changes for 2002/03.
Section E is now headed "Mileage allowance and passenger payments", to reflect the entirely new rules for reporting only the amounts by which allowances paid to employees for the use of their own vehicles on business exceed the maximum exempt amount for the year. A new Working Sheet 6 is available to calculate any reportable excess.
Section F provides the new boxes that are needed to report the CO2 emission figures, size of engine and fuel type indicator for company cars. A new 4-page Working Sheet 2 allows the car benefit charge to be calculated for cars with and without an approved CO2 emission rating.
There is one minor change to the wording of form P9D. Section C, where the provision of accommodation is reported, gives what is simply a point of clarification: "If the accommodation is rented, use the amount of rent payable instead of the gross rateable value."
Even though form P9D does not specifically refer to mileage allowance and passenger payments, any excess amounts must also be reported in section A.
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(Ian Congreave would like to thank
for their specific contributions towards this article.)
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