Penalties: Incorrect P11D Or P9D Returns

Penalties: Incorrect P11D or P9D returns

EXAMPLES

1. A compliance check reveals that the employer has failed to return car and fuel benefits for 10 employees for each the years 2004-2005 to 2007-2008 despite submitting P11D returns with other minor benefits included. It is established through effective questioning that this was through carelessness by not having sufficient controls in place.

No directors are involved therefore in accordance with COG911010 the caseworker invites the employer to settle on behalf of the employees, the grossed up tax liability and NIC on the tax borne.

The employer agrees to settle the Class 1A NIC due on the benefits but on the advice of the accountant refuses to settle the tax and NIC due for the employees. The reason is that HMRC would have difficulty in tracing some of the leavers, so why should he settle their tax. Furthermore he was advised by his accountant (ex IR) that HMRC rarely seek penalties for incorrect P11Ds.

The caseworker advises the employer that as a penalty offence had been committed.

TAA advises that:

a. attempts should be made to have the employees assessed on the benefit b. current employees should have coding adjustments made c. penalties should be included in a contract settlement or issued formally by following the guidance in COG914080.

The case is settled by

a. a contract settlement for the liability not disputed b. referrals to PTC for recovery of the tax due from employees c. a formal penalty determination for the incorrect P11Ds. This penalty amounted to £24,000 (tax due £80000 x 30% abated penalty = £24000).

2. A full review of a company is carried out in 1999-2000. This results in a settlement which includes tax voluntary paid on behalf of employees in relation to car fuel benefit. The employer is instructed to ensure the benefit is returned on P11D for all of the employees involved from 2000-2001.

A further review is carried out in 2004-2005 where it is established that despite the advice provided at the end of the previous settlement, the benefits have still been omitted from the P11Ds for the years 2000-2001 to 2003-2004. A further voluntary settlement is agreed and again advice provided to rectify the matter with effect from the 2005-2006 P11Ds.

A project on car fuel benefit is initiated in 2007-2008 and RIS produce a SIP of high risk cases and the company is included. A compliance check is carried out and it is established that once again the employer has ignored previous advice and not returned the car fuel benefit of the employees. When Penalties: Incorrect P11D or P9D returns

questioned, the company secretary stated that the company would settle the liability as it had in the past and therefore did not see the need to enter the benefit on the P11Ds.

In view of this the caseworker advised that a voluntary settlement would be accepted and penalties for the submission of incorrect P11Ds would be sought because of the blatant actions of the company.

Tax due on the benefit (before grossing up) based on what should have been returned is

2005-2006 290 employees x £14400 x 20% x 22% = £183744 2006-2007 275 employees x £14400 x 20% x 22% = £174240 2007-2008 269 employees x £14400 x 20% x 22% = £170438

Total £528422

In accordance with COG914080 abatements are considered and an appropriate penalty of 20% sought. This amounts to £105684 of the tax recovered and is well within the statutory maximum of £3000 per incorrect return per year.