Any payment made to an employee that is not processed through the Payroll may be regarded by the HMRC as a taxable payment. Other items may also give rise to a tax charge to the employee. This covers items such as:
- expense payments
- other types of benefits such as accommodation and mobile phones
- free use by an employee of a University asset or service.
At the end of each tax year (5th April) the University is required to submit a P11D form to HMRC. This is a return that HMRC requires all employers to submit. It is intended to identify any tax liabilities that because they do not arise from payment of salary through the payroll are not initially accounted for through the normal PAYE payments.
Where a benefit is identified on a P11D return, the tax due will normally be collected by HMRC adjusting the employee's tax code in the next tax year.
It is important to ensure that the P11D returns include all benefits that have been received by employees. From time to time, HMRC conduct audits of employers (including the University) and one of the main areas checked is that of benefits and P11D declarations. This is because errors frequently arise in this area.
Where an error is identified the value of the error is charged to the University and not the employee. Interest is added to the charge and penalties are also normally levied. Furthermore, the value is often multiplied to account for the possibility that the error will have occurred on more than one occasion, possibly in many departments and over several years. This makes charges arising from P11D errors potentially very high. The cost of errors and penalties will normally be charged back to the department in which the error originated.