Expenses and Benefits Returns for 2019/20

Employers who provided taxable expenses and benefits to their employees during the 2019/20 tax year will, as usual, have to tell HMRC about these by 6 July 2020. This obligation is unchanged despite the COVID-19 pandemic.

Form P11D

Form P11D is used to tell HMRC about taxable benefits and expenses provided to employees where these have not been payrolled or included within a PAYE settlement. If the employer has payrolled some benefits but not others, only those benefits which have not been payrolled should be included on the P11D.

Exempt benefits

Benefits and expenses which are covered by a tax exemption do not need to be shown on the P11D. However, exemptions are only available if all the associated conditions are met. Remember, where provision is made via an optional remuneration arrangement, for most benefits the exemption is lost and thus the benefit should be notified on the P11D.

Taxable value

The taxable value of the benefit is its cash equivalent value, unless provision is made via an optional remuneration scheme. Where a benefit-specific rule exists, as is the case for company cars and employment-related loans, the cash equivalent value is calculated in accordance with the relevant rules; where there is no specific rule, the general rule applies. This is the cost to the employer less any amount made good by the employee (which must be by 6 July after the end of the tax year). HMRC produce worksheets which can be used to work out the cash equivalent value for some benefits. These can be found on the Gov.uk website.

If the benefit is made available under an optional remuneration scheme, such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. In this case, the taxable amount is the ‘relevant amount’. Broadly, this is the salary foregone where this is more than the cash equivalent value. The alternative valuation rules do not apply to pensions or pensions’ advice, childcare, employer-provided cycles and cyclists’ safety equipment under cycle to work schemes, and cars with CO2 emission of 75g/km or less, and transitional rules apply in certain cases.

P11D(b)

The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the Class 1A National Insurance return. Remember to take account of payrolled benefits when working out the Class 1A National Insurance liability.

A P11D(b) is still required even if you have no P11Ds to file because all benefits have been payrolled.

If you provided benefit and expenses in 2018/19 but not in 2019/20, you may need to make a nil declaration. This will be required if HMRC sent you either a P11D(b) or a reminder letter. The notification can be made online.

How and when to file

Expenses and benefits returns (P11D and P11D(b)) can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software. Paper returns can also be submitted.

Returns for 2019/20 must reach HMRC by 6 July 2020. Employees must be given a copy of their P11D or details of the information that it contains by the same date.

The Class 1A National Insurance liability must reach HMRC by 22 July 2020 where payment is made electronically. Where payment is made by cheque, the deadline is 19 July; however, as this falls on a Sunday this year, the cheque must be with HMRC by Friday 17 July.

How we can help

Discuss with us what you need to do in order to meet your filing obligations during these challenging times.

Statutory redundancy pay and furloughed employees

The Coronavirus Job Retention Scheme (CJRS) comes to an end on 31 October 2020. As the scheme winds down and employers start meeting some of the associated costs, they will face difficult decisions as to whether they can bring employees back to work or whether they need to make some employees redundant. New legislation has been introduced to ensure that furloughed employees do not lose out on certain statutory entitlements, including the right to statutory redundancy pay.

Nature of statutory redundancy pay

Employees who have at least two years’ continuous employment with their employer at the date on which they are made redundant are entitled to statutory redundancy pay. Where an employer operates a contractual redundancy pay scheme, they must pay employees redundancy pay which is at least equal to the statutory amount.

Where an employee has been placed on furlough prior to being made redundant, the time that the employee was furloughed counts as continuous employment in determining their entitlement to statutory redundancy pay.

The cost of statutory redundancy pay is met by the employer. From the employee’s perspective, it is tax-free as long as the £30,000 tax-free threshold for termination payments remains available.

How much is statutory redundancy pay?

An employee’s entitlement to statutory redundancy pay depends on the length of their service, their age and how much they are paid when they are made redundant. They are entitled to:

• one-and-a half weeks’ pay for each full year of service for which they were 41 or older;
• one weeks’ pay for each full year of service for which they were 22 or older but under 41; and
• half a week’s pay for each full year of service that they were under 22.

Service is capped at 20 years for the purpose of the calculation and counted backwards from the date of redundancy. Pay, too, is capped for the purposes of the calculation. For 2020/21, the cap is set at £538 per week, meaning that the maximum amount of statutory redundancy pay that must be paid in 2020/21 is £16,140 (20 x £538 x 1.5).

Where an employee’s pay varies, statutory redundancy pay is calculated by reference to average weekly pay for the 12 weeks prior to the date on which the employee was made redundant.

Pay and furloughed employees

During the COVID-19 pandemic, the CJRS allowed employers to place employees on furlough and to claim a grant with which to pay them from the Government. The grant was set at 80% of the employee’s pay to a maximum of £2,500 per month.

When calculating statutory redundancy pay for an employee who has been made redundant after a period of furlough, the employee’s ‘usual’ pay should be used, rather than the reduced pay that they may have received while on furlough. This will normally be the pay used to calculate the grant payable under the CJRS, typically their pay for February 2020 or, where their pay varies, their average pay for the 2019/20 tax year. Thus, if an employee whose normal pay is £300 per week is furloughed prior to being made redundant and receives £240 per week (80% of £300) while on furlough, the employee’s usual pay of £300 per week is used to calculate their statutory redundancy pay.

Contact us

We can help you work out whether your employees are entitled to statutory redundancy pay, and the level of pay which should be used to calculate their entitlement.

Correcting claims under the CJRS

HMRC have moved into the next phase of their compliance activity in relation to the Coronavirus Job Retention Scheme (CJRS) and have written to 3,000 employers who they believe may have either claimed more under the scheme than they were entitled to or who did not meet the conditions for making a claim.

Legislation introduced in the Finance Act 2020 provides HMRC with the authority to recover amounts overpaid under the CJRS.

Correcting incorrect claims

If you have made an incorrect claim under the CJRS, the onus is on you to correct the claim. HMRC have published guidance setting out what you should do if you have claimed too much or not claimed enough under the scheme.

What to do if you have claimed too much

The action that you need to take if you have claimed too much under the CJRS depends on when you made the claim and whether you will be making further claims under the scheme.

There is a limited window of 72 hours in which a claim can be deleted from the online claim service. Once this period has elapsed, if you have claimed too much under the scheme, you need to tell HMRC. If you will be making another claim under the scheme, this can be done in your next claim by adjusting that claim for the amount that you have over-claimed. Where this route is taken, you will need to keep records of the adjustment that you have made for six years. If you do not have another claim to submit, you should contact HMRC on 0300 322 9420 to arrange how to pay the money back.

Deadline for telling HMRC about an overpaid grant

To avoid being charged a penalty, you must tell HMRC about any overpaid grants under the scheme by latest of:

• 90 days from the date on which you received the grant to which you were not entitled;
• 90 days from the date on which you were no longer entitled to keep a grant that you had claimed because your circumstances had changed; and
• 20 October 2020.

Repaying any overpaid grant within this time frame will prevent a potential tax liability in respect of the over-claimed amount from arising.

What to do if you have not claimed enough

If you have made a mistake in working out your claim under the CJRS, you may have claimed too little. Where this is the case, you should contact HMRC by telephone on 0800 024 1222 to amend your claim. You should note that even if you have not claimed the full amount to which you are entitled back from HMRC, you must pay your employees the correct amount. Where a claim is increased, HMRC may carry out additional checks on the validity of the claim.

Recovery of overpaid amount

HMRC may recover the full amount of any overpaid grant which has not been repaid by making an assessment to income tax. The amount assessed must be paid no later than 30 days from the date of the assessment. Interest is charged if the amount is paid late. Late payment penalties may also be charged if the amount remains outstanding 31 days after the due date.

If an assessment is not made, the overpaid amount should be included on your corporation tax return or your 2020/21 self-assessment return, as appropriate.

Penalty for failing to tell HMRC about an overpaid grant

If you do not tell HMRC about an overpaid CJRS grant by the notification deadline, you might be charged a failure to notify penalty. The amount of the penalty will depend on whether you knew you had been overpaid and whether you attempted to hide it.

HMRC have stated that they will not charge a penalty if you did not know that you had been overpaid at the time, or if your circumstances changed so you stopped being entitled to the grant, as long as it is repaid by 31 January 2022 (sole traders) or within 12 months from the end of your accounting period (companies).

HMRC have published a factsheet which explains how they recover overpaid grants under the CJRS.

We can help

Speak to us about how we can help you check claims that you have made under the CJRS and correct any mistakes that you might have made.

Final SEISS grant

The Self Employment Income Support Scheme (SEISS) provides grants to self-employed taxpayers whose business has been adversely affected by the Coronavirus pandemic. Eligible taxpayers can now claim the second and final grant under the scheme. Grants paid out under the scheme are taxable.

Eligibility

To qualify for the second grant, you must be a sole trader or a partner in a partnership and your business must have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. As for the first grant, you must have:

• traded in the 2018/19 tax year and submitted your self-assessment tax return for that year no later than 23 April 2020;
• traded in the 2019/20 tax year; and
• traded in the 2020/21 tax year or intend to do so.

The scheme is only open to self-employed taxpayers whose income from self-employment comprises at least 50% of their total income and is not more than £50,000. The £50,000 limit is initially applied for 2018/19 and the test is met if profits for that year are £50,000 or below. However, where profits for 2018/19 are more than £50,000, average profits for 2016/17, 2017/18 and 2018/19 are considered. You will qualify if the average profits for these years do not exceed the £50,000 threshold.

If you meet the eligibility conditions for the second grant, you can make a claim, even if you did not claim for the first grant.

Meaning of ‘adversely affected’

The second grant is only available to businesses that have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. HMRC have published guidance, together with examples, setting out the circumstances in which they consider a business to have been ‘adversely affected’ by the pandemic.

As a general guide, a business will be ‘adversely affected’ if it has experienced lower turnover or higher costs as a result of Coronavirus. This may be because you were unable to work because you were sick, self-isolating, shielding or caring for someone because of the virus. The business may also suffer a reduction in trade or an increase in costs because of interruptions to the supply change, a reduction in customers or the need to incur additional costs to make the business COVID-secure or to meet social distancing requirements.

Need to keep records

To support a claim for the second grant under the SEISS, you should keep evidence to show how and when the business was ‘adversely affected’ by Coronavirus. This may include:

• business accounts showing a reduction in turnover or an increase in expenditure;
• confirmation of any Coronavirus-related loans that the business has received;
• any dates that the business had to close as a result of lockdown restrictions; and
• any dates that the staff were unable to work because they had Coronavirus symptoms, were self-isolating, shielding, or had caring responsibilities as a result of the virus.

How much is the second grant?

As with the first grant, the second grant is based on average profits over the three tax years 2016/17, 2017/18 and 2018/19. If you did not trade in 2016/17 or file a return for that year, the grant is based on average profits for 2017/18 and 2018/19; if you did not trade in 2017/18 or file a tax return for 2017/18, the grant is only based on profits for 2018/19, regardless of whether you traded in 2016/17.

The second grant is worth 70% of three months’ average profits, to a maximum of £6,570.

Claim online

HMRC have written to all traders who they believe to be eligible to make a second claim under the scheme, telling them the date from which they can make their claim. Claims can be made online via the claim portal, which opened on 17 August 2020. The last date on which a claim can be made under the scheme is 19 October 2020.

As with the first claim, you must make the claim yourself; claims by agents are not permitted. However, we can advise you on how to make the claim, whether you qualify and what records you need to keep.