Self-assessment: Expenses question

[TheCyclingProgrammer]

The thing to remember is this: there are expenses that you can claim as an employee that do not attract tax or NI and relief is available one of two ways, depending on the legislation under which relief is available:

* The expense is EXEMPT from tax/NI. These expenses do not appear on your P11d at all. Examples include: the £4 a week use of home allowance, company expenses that you have paid for on the company's behalf, AMAPs up to the prescribed limits.

* The expense is strictly taxable under employee expenses legislation but equivalent relief is available under personal tax legislation. These expenses appear on your P11d. A common example is business travel.

The former do not need to go on to your self assessment. The latter do. In short, the total from your P11d goes on your self assessment under "expense payments received" and you make an equivalent claim for this amount under the business expenses section.

The only exception is if you have a dispensation from HMRC. These are normally given if all the expenses that appear on your P11d would be otherwise claimable and is designed to reduce paperwork, but you have to apply for one.

http://www.hmrc.gov.uk/manuals/eimanual/EIM20601.htm

[TheCyclingProgrammer]

Given that I have an empty P11D and that all of my expenses have been reimbursed, I make it that both of these sections are zero?

If you have a nil P11d then you are right that you do not have to enter anything on your self assessment as far as expense payments go.

BUT, you might want to check if you aren't missing things from your P11d. Unless an expense payment is exempt from the expenses and benefits code, it should be on there, even if there is equivalent relief under other legislation.

For the typical contractor, the most common expenses to appear on your P11d are business travel expenses (including accommodation and subsistence) and business calls, if you are claiming for calls on your home phone for example.

There ARE expense payments that do not appear on your P11d or self assessment though. Some common examples in my previous post.

[7specialgems]

* The expense is EXEMPT from tax/NI. These expenses do not appear on your P11d at all. Examples include: the £4 a week use of home allowance, company expenses that you have paid for on the company's behalf, AMAPs up to the prescribed limits.

For the typical contractor, the most common expenses to appear on your P11d are business travel expenses (including accommodation and subsistence) and business calls, if you are claiming for calls on your home phone for example.

In my case and further to what you've said, I've only got an entry on my P11d for some business calls on my mobile that amount to about £10.

So, it says:

Other expenses:

Cost to you: £10.00
Amount made good or from which tax deducted: £10.00
Taxable payment: £.0.00
Total taxable payment: £0.00

In short, the total from your P11d goes on your self assessment under "expense payments received" and you make an equivalent claim for this amount under the business expenses section.

I guess this is £0 and £0 then? Or is it £10 and £10?

[TheCyclingProgrammer]

Why do you have £10 under amount made good? "Amount made good" means either a) YourCo has already deducted tax from the amount paid (via PAYE) or b) you gave money back to the company (e.g. the company paid for a personal expense of yours which isn't tax deductible, so you reimbursed the company - the original expense that the company paid would appear in the relevant box and the amount you paid back would appear under "amount made good" - cancelling out the payment and meaning you do not owe any tax/NI).

Source: http://www.hmrc.gov.uk/guidance/p11dguide.pdf (under heading Amount Made Good)

If the company reimbursed you for £10 of business calls, you should have £10 in box N on your P11d and £0 under "amount made good".

You would enter £10 on your self-assessment under "expense payments received" and £10 under "business costs". The £10 paid to you by your company is treated as taxable income and is offset by the equivalent claim on your SA.

In short, you should have £10/£10 on your SA and your P11D has not been filled in correctly.

I take it you've made no other expense claims in the year from YourCo? (no business travel including travel to a temporary workplace?).

[7specialgems]

You would enter £10 on your self-assessment under "expense payments received" and £10 under "business costs". The £10 paid to you by your company is treated as taxable income and is offset by the equivalent claim on your SA.

But won't the company then be charged Class 1A NICs on a legitimate business expense?

In short, you should have £10/£10 on your SA and your P11D has not been filled in correctly.

Agreed.

I take it you've made no other expense claims in the year from YourCo? (no business travel including travel to a temporary workplace?).

All other expenses were company expenses which I paid for initially such as insurances, stationary.

My business travel did not exceed AMAP/did not include any hotels etc.

[TheCyclingProgrammer]

But won't the company then be charged Class 1A NICs on a legitimate business expense?

No; not everything that appears on your P11d is liable to class 1A NICs. The HMRC A-Z guide will give you an indication of whether or not an expense should appear on the P11d (i.e. it's not exempt) and whether or not there is tax or NI to pay on that expense.

In the case of business calls, it's not exempt, so it appears in Box N on your P11d but there is no tax or NI to be deducted by the employer.

HM Revenue & Customs: Telephones - employee's home phone

All other expenses were company expenses which I paid for initially such as insurances, stationary.

That's fine, but strictly speaking, for those to be recognised as "payments on the company's behalf", it should have been made clear to the supplier and accepted by them that you were paying on behalf of YourCo.

What that means in practice is that any invoice should have been in the company name and not yours, so you should make sure of that whenever you pay for a company expense personally (but ideally, you should try and pay for company expenses using the company bank account whenever possible).

[7specialgems]

I'll heed your advice over Company expenses in the future.

With regards the business calls, they were actually mobile rather than landline calls, however using the resource you've provided then I have identified that they are NI exempt also:

"if you pay any business call charges that aren't covered by the employee's monthly tariff, then you can disregard them for Class 1 NICs purposes but you should report them on form P11D unless you have a dispensation covering these amounts".

Clearly then, the P11d is botched. I'll be onto the accountant first thing Monday morning - processing my SA is stuck until this is resolved.

I'll then (I think I've got this right now) mark "Expenses payments received and balancing charges" under "Taxable benefits and expenses" to £10 (to reflect the taxable payment total on the revised P11d), and set "other expenses or capital allowances" under Employment Expenses to £10 to offset it from being taxed.

[TheCyclingProgrammer]

Correct. If your accountant prepared your P11D for you, I'm surprised that he filled in the "amount made good" incorrectly. It's not the sort of mistake I'd expect an accountant to make TBH.

The net effect for tax is the same either way, but it does have a knock-on affect of several boxes having the wrong figures in as you have seen (check it hasn't affected your P11D(b) submission too but I don't think it will have).

[7specialgems]

Unfortunately, the more I look, the worse it gets!

Using the A-Z listing, I've revisited all of my expenses for 2012/13.

They have missed a large expense for PL/PI , which according to the Insurances section, needs reporting.

I think I'll need to get on the phone sharpish with them Monday, though, to seek clarification over:

• Formation fees
• Advertising costs
• Accountancy fees (ironically)

They strike me as clear cut "Company" expenses which strongly imply no risk of a personal BIK, but the A-Z description of "Business" expenses doesn't appear compatible and then there is the historical use of a P11d by some accountants as an exhaustive list.

This little episode has taught me quickly why the P11d is so hated.

[TheCyclingProgrammer]

Remember that the A-Z list relates to employee expenses, not company/business expenses, which generally follow the "wholly and exclusively rule" and is covered in more detail in HMRC's BIM (BIM37000 - Wholly & exclusively: contents). The "Business expenses" section in the A-Z refer to employee business expenses which have a slightly different general rule ("wholly, exclusively and necessary").

You should talk to your accountant, however:

* Accountancy fees - your accountants should be invoicing YourCo. It's a company expense. It shouldn't appear on your P11d. If it was invoiced to YourCo but you've paid for it personally and then been reimbursed, it still shouldn't appear on the P11d.

* PL/PI insurance is a genuine business expense - YourCo should have paid for this (Specific deductions: insurance: contents)

* Advertising - normally an allowable business expense (Specific deductions: advertising: introduction and contents), again this should be paid for by YourCo.

You should see now that the rules for company business expenditure and employee expense payments are different and that paying for lots of genuine company expenses out of your own pocket has the potential to complicate matters and makes filling out your P11d more work than it needs to be.