David Barry Accountant - limited company email 08 April 2010

Benefits in kind sit on top of a directors income making the director subject to personal tax at his/her top rate of tax.

This totals £90879.25 sits on top of your salary and can potentially cost the company your personal tax at 20% = £7480 (up to £37400+6475) and the balance of £37900.25 at 40% = £15160.10 which totals £22640 (itself assessed as benefit in kind) (you are a participator in the company with ordinary voting shares and also a full-time working director.)

Solutions 1 Each year at the time the company prepares P11D forms (must be submitted to HM Revenue and Customs by 09 July of the following tax tax year) on behalf of the directors/employees earning more than £8500 BIM 37025 (formerly S189 TA1988 )claims should be prepared. Both forms and elections should be forwarded together to HM Revenue and Customs.

Solution 2 Alternatively each director of the company are able to apply for a dispensation from HM Revenue and Customs which negates the necessity for preparing BIM 37025 claims as the benefits entered on the P11D form are nil. Practically this means that you should write to HM Revenue and Customs explaining the circumstances of these benefits in kind and that these should always be reduced to zero the grounds being that the expenditure is always wholly exclusively and necessarily for the purposes of the trade.

Solution 3 Each director should only expend money through company credit cards and in this way the expenditure does not need to be entered on individual directors P11D forms.

Please note that you have sent me a PDF for 05 April 2009 and so the same problem will occur in 05 April 2010. Please note that you should now urgently speak to the accountant of the company and seek advice on the preparation of P11D forms taking account of the three solutions that I have suggested.

Also note that on these particular benefits in kind might also be assessable on the company (importantly not on the employee) as class 1A NIC at 12.8% giving the limited company extra tax to pay(class 1A is really a tax) of potentially £90879.25 x 12.8% = £11632.54 and must be reported on form P11D(b) .

The problem with solution 1 is that the director is always on the backfoot as each year you are seeking to justify to HM Revenue and Customs that the benefit in kind is zero leaving you open to Revenue enquiry and if solution 1 is followed then extreme detailed records must be kept that each item of expenditure entered on the P11D is evidenced by directors private reimbursement POUND FOR POUND.

What the P11D is in essence saying is that the company is spending private money on behalf of the director which is not being reimbursed. What you need to prove is that the director is reimbursing the company pound for pound with a clear audit trail.

From what you said to me at the telephone you already use the company credit card and so on this occasion this expenditure should not be entered pound for pound on your P11D form.

Please ask the company to now write to me at my address (email is fine with accompanying PDF) detailing that each part of the above expenditure was incurred wholly exclusively and necessarily for the purposes of the trade and that "the company holds records that this can be evidenced by a clear audit trail in the company accounts pound for pound."

It is also imperative as I explained above that this email be forwarded on to the accountants of the company for implications of class 1A on the company for both 05 April 09 (already submitted to HM Revenue and Customs) and also about detailed preparation of P11D forms for 05 April 2010.