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Dispensation from reporting expenses
All benefits and expense payments must be reported on form P11d unless the
employer has obtained a dispensation by application to the Inland Revenue.
Slightly different rules apply to employees paid at less than £8,500 per
annum. Benefits are assessed to tax and
subject to class 1a (employer) NIC.
Trivial benefits (Employment
Income Manual paragraph 21863)
The Inland Revenue accept that a seasonal gift, such as a turkey, a bottle
of wine, or a box of chocolates (but not a case of wine or a hamper) is a
trivial benefit. A small gift such as an arrangement of flowers to mark
the birth of a child and is not a reward for services may also be regarded as
trivial. Trivial benefits do not have to be reported, so you could request
your Tax Office to agree that you do not have to include them on forms P11d or a
PAYE Settlement Agreement (PSA).
Meeting an employees personal liability
If an employer meets the personal liability of an employee, the amount paid
should be included in gross pay and subject to Income Tax and employee and
employer National Insurance Contributions (NIC).
One example is in respect of petrol, even when purchased on a company credit card. Before filling the car employees should tell the forecourt cashier that they are buying fuel on behalf of their employer! Unless previously advised otherwise the retailer will look to the person who puts the fuel into the tank to pay the bill, i.e. charging the expense to the credit card is meeting the liability of the employee.
Finance Act 2000 (sect 58 and sch 10)
New provisions were introduced to clarify that benefits provided at the place of work where the
private use element is not significant are not assessed, nor are benefits
provided other than on the employers premises if the sole purpose of providing
the potential benefit is to enable the employee to perform the duties of his
employment.
An example would be an employee provided with a fax machine at home to communicate with an antipodean sales office where up to 5% private use would not be assessed as a benefit. 25% private use would be significant and would be assessed unless reimbursed in full by the employee.
A directors home telephone, provided under an employers contract, used for making and receiving calls from the other side of the world, with no actual private use would probably be assessable for two reasons. Firstly, the Inland Revenue expect the employer to have procedures to ensure that the private use is not significant, and such procedures are likely to be lacking in respect of a director. Secondly, it would not be easy to convince the Inland Revenue that the benefit of access to the phone was provided solely to enable the director to perform the duties of the employment.
Home telephone
If the telephone provider bills the employee,
and the employer pays the bill, the whole amount should be included in gross
pay, but if the contract is directly between the employer and the telephone
provider prior to FA 2000 the employee was only subject to a benefit in kind in respect of
private use.
British Telecom are used to requests (telephoned on 150) for residential lines being billed to employers. The line remains in the residential section of the directory and billed at the residential, not business rate.
Mobile phones
If provided by the employer these were subject to a standard
£200 per annum benefit adjustment until 6 April 1999 when that standard
charge was abolished. Private calls on an employer provided mobile are not
a benefit unless the employee can give up the phone and get higher remuneration.
Personal Digital Assistants (PDA) which have a primary function as a mobile
phone, but which can be used to access the internet more usual in a
computer, are not an assessable benefit. All the charges an employer pays on an mobile phone belonging
to an employee are still a benefit.
Duality of purpose
This concept causes a lot of problems in respect of expense
payments. The basic principle is that unless a cost is specifically incurred for
a business purpose it will be assessed as a benefit. The Inland Revenue will generally not allow a claim for any part
of telephone rental charges as a deduction as the rental permits the employee to
make and receive private as well as business calls. By contrast it can be
argued that the call charges can be divided between those which relate to
business calls and are therefore allowed, and those which relate to private
calls.
Travelling expenses of a dentist to and from a dental laboratory would normally be allowed as a business expense, but not in the case of Sargent v Barnes where the laboratory was on the dentists journey from his home to his surgery, because no additional cost was incurred and the concept of duality of purpose.
Motor expenses
Until 5 April 2002 it has been possible to claim the business proportion
of actual motor expenses as an expense. From 6 April 2002 it will only
be possibly to claim the Fixed Profit Car Scheme (FPCS)
rates. There has been some conflict with the concept of duality of purpose
in that a proportion of the licence and insurance was accepted as part of the
claim. It can be argued that repairs and depreciation increase with
additional business mileage and the FPCS rates reflect this.
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 21 November 2004.