Reply to: Self-assessment: Expenses question

[Contreras]

I notice that the Personal self-assessment provides box 17 to account for expenses.

As a Company Director who was reimbursed in full by the company for all of my expenses (and paid 45p/mile for my mileage) am I correct in thinking that I do not complete this section?

For clarification, am I correct in my understanding that this section is not to be completed by Directors but instead is provided for people who are trading on their own name to claim back expenses against tax or to claim back the difference in underpaid expenses? (i.e. 25p paid for mileage so 20p claimed).

To answer this you need to understand what goes on the P11D and then how that relates to your personal SA. So basically there are two questions.

What goes on the P11D? - Put simply, any expenses that might be liable as BiK because there is a potential personal benefit. That includes travel and accommodation expenses but NOT statutory allowances such as 45p/mile claims.

What goes in the SA? - Declare the 'benefit' paid by the employer (amount copied from P11D) and also declare that you incurred the same amount as a business expense. I.e. you enter the same amount twice on the SA in different boxes.

This post from NW, http://forums.contractoruk.com/accou...ml#post1541668 explains it very well, concluding:

These two entries then cancel each other out so there is no additional income on your return and thus no additional tax charge.

Note that assets or consumables that you simply pay for out-of-pocket and then claim back from the business are generally accepted as being out of scope for P11D as these are clearly business expenses. HMRC have guidelines on what is/is not to be treated as BiK.

Also note that in HMRC's view the method of payment bears absolutely no relevance to any of the above. Paying for an expense via the company debit card does not mean it shouldn't be recorded on the P11D. Please ignore Mal's sanctimonious comments because in general (unless you want to dismiss the HMRC guidance) paying direct from the company account should make no difference to the P11D or SA.

[TheCyclingProgrammer]

Rule of thumb:

* If you need to check the rules regarding your out of pocket expenses as an *employee* and the implications of claiming those back from YourCo, check the A-Z I posted first and for more detail check the Employee Information Manual and remember there are both tax and NI implications and the rules and legislation for each are slightly different: The benefits code: benefits and expenses payments: contents

* If you need to check the rules regarding genuine business expenses that YourCo incurs and whether or not they are tax deductible, then check the Business Information Manual (which applies to any business, including sole traders and partnerships): BIM40000 - Measuring the profits (specific rules & practices) - receipts & deductions: Contents (caveat: some of the rules outlined in the BIM only apply to self-employed individuals, such as use of home)

[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.

[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]

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]

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]

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]

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]

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]

* 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]

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.

[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

[ASB]

I think this is why my accountant describes HRMC documentation as being written in "FAIR" language, that being "Ambiguous Inland Revenue" and the F being an adjective

I am with you now.

The thoughts on the P11D come from HMRC's "help" text that is provided in question bubbles next to each item on the Online return. For most of them on the first expenses option it says "this information is available on your P11D".

I have just experimented with putting the same figure on both parts and, yes, the calculation neutralises itself.

They may have updated thier guidance. It used to include some words about dispensations.

I am assuming you dont have a dispensation. In which case hmrc expects to see xx on the p11d. Xx on the sa100 as expensee paid to you. And xx as expenses claimed.

In the case where there is a dispensation 0 and 0.

Before prssint the submit button it might be worth having a check with the accountant about the p11d.

[7specialgems]

I appreciate your frustration (and ultimately the pointlessness of it all), but without a dispensation:-

Have you received any expenses? Yes.
Do you want t claim any? Yes (oddly those mentioned above).

Given your quote I dont know where youre thoughts on p11d come from.

You should of course have put said expenses on your p11d (probably).

I think this is why my accountant describes HRMC documentation as being written in "FAIR" language, that being "Ambiguous Inland Revenue" and the F being an adjective

I am with you now.

The thoughts on the P11D come from HMRC's "help" text that is provided in question bubbles next to each item on the Online return. For most of them on the first expenses option it says "this information is available on your P11D".

I have just experimented with putting the same figure on both parts and, yes, the calculation neutralises itself.

[ASB]

Which is why all such expenses are paid for by the company and none of the money goes anywhere near my bank account. Which is even easier...


I've never understood the passion for paying out your own money and claiming it back, but if it makes you happy...

You are quite right my gartered friend. But the point is the form is intended to cover all possibilities. My employer chooses not to let me loose with their chequebook.