Why don't HMRC know how to deal correctly with P11D's ?

[AvsFan]

I recently filed my P11D & P11D(b) & when reading about completing these forms from info provided online one of the issues that arose was that even though certain expenses still needed to be reported although they were business expenses and therefore tax deductible, HMRC would then see these as benefits and adjust your tax code accordingly by reducing your tax allowance.
This appears to be common & requires a phone call to HMRC to readjust your tax code back to what it was.

Sure enough not long after I submitted the P11D, I was notified by HRMC of a change in my Tax Code, where they had reduced my personal allowance.

I phoned the HMRC Employer Helpline but the bloke said he couldn’t change it, because the P11D expenses were showing as a benefit to the individual. Even though I explained that as an Employee all expenses were tax deductible but still needed to be reported he didn’t seem to understand and said I needed to submit a P87 form (formerly Section 336).
He put me through to Employer section to another lady who agreed with me that my personal allowance should not have changed but said I needed the Employee section and so transferred me back and explained to the person there.
This person was as useless as the first person. He stated I needed to submit a P87 which he said negates the benefit that appears on P11D from being an employer benefit (I was on the phone for over an hour by now so I couldn't argue any further even though I don't think this was correct!).

He agreed to change the tax code and issue a P87 by post which I will have to fill in. My tax code is now correct but I have now received this P87. Doing my own investigation I see that P87 form is for claiming tax relief for monies spent to do your job, however if your employer has paid back the expenses you can’t claim tax relief.

Therefore should I just ignore this form now that my tax code has been correctly amended or will HMRC systems show this up as being a form they're expecting to be returned ? Is it correct that I need to fill in this P87 ?

[Clare@InTouch]

It's incredibly annoying, we get thousands of these! If you complete a tax return you add the expenses from section N onto your Employment pages and that offsets it. Of course when there's a timing difference between P11d and tax return you get coding changes, which the (old) 336 is supposed to counter.

The alternatives are to make sure you pay for everything on a company debit card, so have no need to pay expenses, or to try to get a dispensation covering the expenses so they don't need to go on your P11d in the first place. HMRC have become quite awkward about issuing dispensations to small Ltd companies recently, but it may help depending on what the expenses are.

[TheCyclingProgrammer]

I had his issue every year, as Clare said its due to the timing differences between the P11D and your SA. Until you submit a SA, HMRC have no way of knowing that the numbers on your P11D relate to genuine business expenses and as such are treated as a taxable benefit by default.

If your only expenses are travel, subsistence, accommodation and business calls then it's well worth applying for a dispensation. I did it a few months ago and it came through after a few weeks, backdated to the beginning of the tax year. So no more P11d for me as all of my expenses are now covered by the dispensation, and now more silly tax code games.

As annoying as it is, every time I've had the issue I've rung HMRC and they've reissued the original tax code. That might be because I get my SA quite early, I don't know.

[AvsFan]

Agreed about the dispensation. I had read that so I applied recently and I'm waiting to hear. However, that will only apply for this tax year going forward.

My other question was although HMRC have now readjusted my tax code correctly they have sent me this P87 form to fill in (Tax Relief for expenses of employment). However, as indicated in original post I don't think this form is relevant so should I just now ignore it ?

[Clare@InTouch]

Agreed about the dispensation. I had read that so I applied recently and I'm waiting to hear. However, that will only apply for this tax year going forward.

My other question was although HMRC have now readjusted my tax code correctly they have sent me this P87 form to fill in (Tax Relief for expenses of employment). However, as indicated in original post I don't think this form is relevant so should I just now ignore it ?

You can ignore it if you file a tax return, which I presume you do?

[Martin at NixonWilliams]

We have the same problem - I cross my fingers after the end of each tax year hoping it won't be an issue yet it does not seem to have gone away! It generally only happens to our clients with 'other expenses' on their P11d, not travel etc.

[TheCyclingProgrammer]

We have the same problem - I cross my fingers after the end of each tax year hoping it won't be an issue yet it does not seem to have gone away! It generally only happens to our clients with 'other expenses' on their P11d, not travel etc.

I think I've only ever filled in Box N and it's always caused me a problem.

[MPwannadecentincome]

Just fill in SA and P11D at the same time - that's what I am doing now :-)

[Sausage Surprise]

I had his issue every year, as Clare said its due to the timing differences between the P11D and your SA. Until you submit a SA, HMRC have no way of knowing that the numbers on your P11D relate to genuine business expenses and as such are treated as a taxable benefit by default.

If your only expenses are travel, subsistence, accommodation and business calls then it's well worth applying for a dispensation. I did it a few months ago and it came through after a few weeks, backdated to the beginning of the tax year. So no more P11d for me as all of my expenses are now covered by the dispensation, and now more silly tax code games.

As annoying as it is, every time I've had the issue I've rung HMRC and they've reissued the original tax code. That might be because I get my SA quite early, I don't know.

Same problem every year for me too, although they change the code back straight away when I call. I've actually just written to my acct this morning about this issue. Will be interesting to see if they come up with your excellent solution.

[TheCyclingProgrammer]

Same problem every year for me too, although they change the code back straight away when I call. I've actually just written to my acct this morning about this issue. Will be interesting to see if they come up with your excellent solution.

Even if they don't, you can do it yourself. It takes 5 minutes and mine came through after a few weeks.

https://online.hmrc.gov.uk/shortforms/form/P11DX

I don't know what they look at when deciding whether to permit dispensations, assuming they do have a proper look at each application. If they do, then having years of effectively nil P11Ds (i.e. £x in Box N reciprocated by an equal amount on your self-assessment) - as I did - will probably swing things in your favour. You also need to demonstrate that you have a system in place to make sure receipts/expense claims are checked. This is one of my wife's duties as part of her role as company secretary but it could be as simple as saying your accountant verifies claims, I think.