2016/17 Forms P11D – The Major Changes

In addition to the need to complete the 2016/17 forms P11D this year is the first one that will be dealt with under the new requirements that were introduced on 6 April 2016. We have listed the changes below.

NO MORE DISPENSATIONS

Up until 2015/16 if you were reimbursing business expenses or paying professional subscriptions for employees you could avoid reporting these items on the annual forms P11D by applying for, and being granted, a dispensation from H M Revenue & Customs. From 6 April 2016 this requirement has been removed and so, effectively, every company now has a dispensation and therefore only taxable benefits need to be reported.

Whilst this may be good news on the reporting side it does not remove the need to maintain the records which show that those reimbursed expenses are truly business costs. In fact, the need to maintain good records of reimbursed costs has increased because you, as the employer, are now effectively claiming on behalf of your employee that the reimbursed expenses are 100% business-related instead of the employee having to make a formal claim. You therefore need to be absolutely sure that, for example, every travel cost is a business journey. I assume that, at present, employees are asked to submit an expenses claim before anything is reimbursed but you may wish to include within the claim form a declaration from the employee that the expenses were incurred wholly, exclusively and necessarily whilst on company business.

FIXED RATE PAYMENTS

If you are using H M Revenue & Customs fixed rate expenses such as a daily travel allowance or overnight meal allowance these can continue and are not reportable on anybody’s form P11D but if you have a specific agreement that has been negotiated independently of the national figures then this may need to be reapplied for if the original agreement was made prior to 6 April 2011. H M Revenue & Customs have indicated that they do not expect to challenge any reapplications but I anticipate that if you are not using the benchmark rates there will be many companies applying to have their original agreements carried forward and therefore there may be something of a delay before the new authority is issued. The recommendation must therefore be to make your application as soon as possible.

THE £8,500 SMALL EARNINGS THRESHOLD

For many many years employees (but not directors) who earned at a rate of less than £8,500 per year were exempted from reporting any benefits but this was removed with effect from 6 April 2016 so everybody must now be given a form P11D if they are in receipt of a benefit. This means that the form P9D has, effectively, been abolished thus removing an anachronism that has been with us since the 1970s. To give you some idea of how long this limit has existed the reason that £8,500 was picked was when the rule was first introduced that was the point at which you started to pay higher/additional rate tax.

TRIVIAL BENEFITS

At long last we have a financial definition of trivial benefits which do not need to be reported on the annual forms P11D. For many years we have been struggling with the vague definition of “a bottle or two of inexpensive wine at Christmas or a bottle of ordinary spirits” but now H M Revenue & Customs have agreed that anything up to £50 per “trivial benefit” can be ignored for both P11D and PSA purposes. There is, however, an overall “cap” of £300 per year in respect of directors or other officeholders of close companies or members of their families.

In addition, any benefits that are classed as trivial cannot be cash, a voucher, or anything that is exchangeable for cash. They also cannot be in connection with any Salary Sacrifice arrangement nor can they be provided in connection with services performed i.e. do this and I will buy you lunch rather than pay you.

OTHER CHANGES

In addition to the above P11D changes there are also new regulations in relation to Salary Sacrifice arrangements from 6 April 2016 and you now have the option of putting certain benefits through the payroll rather than on a form P11D (provided they are not already being encoded and the tax year has not started) and if you would like to discuss either of these specific items further then please contact us.