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UK Accounting - The P11D

Having written a number of well received blog posts on the intricacies of corporate accounting I figured that I would try and write some more. Hopefully this will help you with your filing requirements, and will also serve as a reference should I ever need to refresh my memory on a particular topic.

This one pertains to the P11D form which you must complete if "you’re an employer and need to report end-of-year expenses and benefits for employees who earned £8,500 or more". The P11D also has an accompanying form - the P11D(b) which is used "to report Class 1A National Insurance contributions due on expenses and benefits, and to declare you have sent forms P11D to HM Revenue and Customs (HMRC)."

What to report.

I find that the best way to answer this question is to simply think logically. If your employer gave you a boat, that is clearly a good thing. It is a benefit. If your employer paid you for the extra costs associated with working from home (lighting etc) then that is not a benefit - you have not gained anything, you have simply covered costs that would not have otherwise existed.

Note I initially got this wrong. As outlined here, limited companies "are more restricted in what can be claimed for use of home" (relative to self employed individuals). A limited company can not use HMRCs 'Simplified expenses' system, and as of the time of writing can only claim £18 per month for 'use of home' (without qualification). This is detailed in this manual.

If you visit this page you can view the paper version of the P11D form. It is short and gives a general overview of the items that must be declared on the form.
These include situations whereby an employer:

  • provides an employee with a company car
  • pays for travelling expenses
  • provides health insurance

A full list of expenses and benefits can be found here. It details exactly what you need to report under specific alphabetically organised categorisations.

A more detailed and complete overview can be found in booklet 480(2016).

Pertinent examples

Some benefits are exempt from being reported (under certain circumstances). The ones that have been particularly relevant to me are:

  • Mobile phones - an employer can provide one mobile phone to each employee to use for private and business calls without needing to report it on the P11D

  • Computers - my computer is exempt from reporting because "the computer is provided for work purposes and the employee doesn’t make ‘significant’ private use of it"

  • Medical expenses - whilst I wasn't initially aware of this, health and safety legislation when working with computers/monitors means that my eye tests and contact lenses would be exempt from reporting.

Deadlines.

The deadline for an employer to file P11D forms for their employees is the 6th July following the end of the tax year. For the 2015-16 tax year the forms must be submitted by the 6th July 2016.

You must pay any Class 1A National Insurance owed on expenses or benefits by the 22nd July.

Reimbursement of expenses

In my case (as a sole director of a limited company) the only expenses that I had personally incurred in relation to the company were for small incidental purchases when for whatever reason I was unable to directly purchase the product with company funds.

In these cases I accounted for the purchases as loans to the company. That is to say I credited my directors loan account for the costs of the purchases.

In relation to the P11D one does not need to report such expenses. Booklet 480 (mentioned above) states (under section 5.19) that:

"Businesses are often run in such a way that employees make payments on their employer’s behalf. For example, an employee may buy stamps,stationery and items of equipment for the employer and be reimbursed the costs incurred from petty cash or by cheque. Such transactions are not providing the employee with either earnings or expenses because the employee has received no money of his own. Accordingly such reimbursements do not feature on the P11D."

This is discussed and alluded to in this post on the Taxation.co.uk forums.

Going back to my initial explanation, there is clearly no benefit being provided when one receives a reimbursement for a £4 USB cable.

Summary

In the case of Double Negative Solutions no P11D needs to be submitted. This is because as a sole director I do not receive any benefits from the company (apart from my salary, and those that are covered by exemptions).

For larger companies the provision of cars, the annual office party, and the payment of travel expenses may be considerations.

The intricacies of the Google Places Web API

The Mmmm.com web and mobile applications provide location functionality based on a complex integration with the Google Places API.

Fortunately their web API is well documented, and given the scale of the data on offer is well covered with integration wrappers for the various appropriate programming languages.

Mmmm.com utilises this PHP wrapper. By taking a look at the source code you can see how simple the API really is.

One API to rule them all

As alluded to above, both the web application and the mobile applications utilise the Google Places API. To reduce complexity however, they all integrate with Googles web API by proxy of the Mmmm.com API. That is to say that the mobile applications call our in-house API which handles calling and returning Google Places data rather than integrating directly with the respective native APIs.

If you want to use the native APIs, they can be found here: Android, and iOS.

Which endpoint?

Google offer a 'nearby search' and a 'text search' API endpoint. They also offer 'autocomplete'.

Nearby search

In principle the 'nearby search' would be ideal, but there is the use case where a user wants to upload a photo taken previously in a location that they are now not near. Previously we had integrated a segmented search control such that users could specify if they wanted to search nearby or anywhere. This was however deemed overly complex and as such we settled on a singular 'search' utilising the 'text search' option.

Text search

Text search allows you to search for string searches like "Pizza in Leeds".
Unfortunately the text search API blows up a little when it comes to partial search terms.

I found from experimenting that searches for 'Mcdon' would return various results for branches of Mcdonalds, but searches for 'Mcdonal' would return completely different branches (even when the same location bias parameters were sent). One search returned a singular result.. for a Nandos..? :S

The issue with this is that one can safely assume that the closest McDonalds branch is of most relevance to the user. If that result is not returned, or it is not given the prominence it deserves, then again the user experience is affected.

Text search does resolve the issue of locations that are no longer nearby. A user can search for 'Macys New York' and return a specific location somewhere complete different.

Autocomplete

In addition to these two 'search' APIs, Google provide an autocomplete API. This allows you to query a partial location name and have suggestions returned as to the location that your user is looking for (like in the Mcdonalds example above). Unfortunately the autocomplete endpoint only returns very basic data - it does not for example return the locations latitude and longitude which in my case meant I could not calculate and display how far the user was from each location.

Additional considerations

Intricacy

Whilst the documentation suggests otherwise, my testing suggests that that 'radius' parameter for a 'nearby search' be specified in meters, whilst for a 'text search' it be specified in kilometres (contrary to the documentation). Well.. when the radius is set at 50 for a search from Leeds, England, I get results from Manchester, England too. Last time I checked Manchester was more than 50 metres from Leeds.

Annoyance

Google have annoyingly deprecated their 'types' functionality. Previously you could specify that you only wanted to return results for locations of specific types - bars, restaurants etc. They have not done this with any (in my opinion) justified or reasonable explanation.

My personal opinion is that people are not taking a lot of photos of food at an accountancy firm, and as such it seems reasonable that I should be able to specify not to return locations of type 'accounting'. Google are forcing a poorer user experience on customers of companies who utilise their APIs.

One work around (if using the nearby endpoint) is to do some post processing of the returned results. Such an API call does return the 'types' in the response array and as such (at the cost of a little additional overhead) one can show only the appropriate types of location.

Companies, Accounting, and Tax - a reference list

This post seeks to provide a list of useful and informative resources that have aided in the development of my own understanding of subject matters pertaining to companies, accounting, and tax.

These links are the basis of the knowledge from which i was able to discern and understand the subject matters outlined within my previous posts:

General resources

Capital

Capital Allowances

Statutory Accounts

Corporation Tax

FreeAgent

Pensions

Misc

Accounting knowledge required to manage your own books

The title of this post is not strictly true in that I was managing my books through FreeAgent (disclaimer - referral link) previously.
That said, having taken the time to thoroughly understand that outlined below I find everything a lot easier.

This is a bare minimum overview of the accounting knowledge required to manage your own bookkeeping. A lot of this knowledge was garnered from Principles of Accounting and Accounting Coach. I hope it helps.

You can use the knowledge outlined below to make following my previous posts (Running a UK limited company and Filing your corporate tax return yourself) a little easier.

Explanations and equations

  • Revenue = Turnover
  • Net Income = Revenues - Expenses = Bottom line
  • Retained earnings = last years retained earnings + net income - dividends

NOTE - Dividends are not an expense. They are a distribution of income

  • You must have a credit balance in Retained Earnings to issue a legal dividend.

  • Capital Stock is the amount of money shareholders have put in.

  • Capital stock + Retained earnings = Assets - Liabilities = Book value of the company

  • The General Ledger is nothing more than a notebook, with a separate page for every account.

  • Accounts receivable (an example of an account) are amounts "owed to a company by its debtors". As such they are an asset.

  • Debits appear on the left.

  • Credits appear on the right.

  • Dividends, Expenses, Assets, Losses increase with a debit.

  • Gains, Income, Revenue, Liabilities, Stockholders Equity increase with a credit.

  • The Trial Balance validates that debits equal credits.

  • A Journal is essentially a log book. It notes the accounts involved in a transaction and the amounts debited/credited

  • Accrual-basis accounting involves recording revenues when earned and expenses as incurred.

  • If a service is provided and payment is allowed many months later, the revenue is recognised on the date that the service was provided.
  • If you buy some business stationary the expense is incurred on that date. If you pay your rental fees up front for a one year period, the expense should be recognised in the accounts monthly.

  • Asset cost - accumulated depreciation = book value

  • Accounts with balances that are the opposite of the normal balance are called contra accounts

  • Accumulated depreciation (Depreciation bought Forward) is the contra account to the respective asset account (e.g Computer equipment) and allows both the initial (gross) cost to be reported in the books as well as the book value.

  • Conservatism is best explained with a quote - "Under the conservatism principle, if there is uncertainty about incurring a loss, you should tend toward recording the loss. Conversely, if there is uncertainty about recording a gain, you should not record the gain. source.

  • Google define depreciation as "a reduction in the value of an asset over time, due in particular to wear and tear.".

  • You account for depreciation by displaying part of the assets cost on the Profit and Loss statement over a number of years.
  • The yearly depreciation amount is reported within the Depreciation Expense (Depreciation in year) account.
  • Depreciation essentially transfers a part of the assets value from the balance sheet to the profit and loss statement - each year part of the cost is expensed.
  • Depreciation is a non-cash expense. It will reduce profits without any cash changing hands.

  • The following types of account are listed on the balance sheet: Assets; Liabilities; Stockholders' (or Owner's) equity

  • Balance sheet account balances are carried forward to the next accounting year - at the end of an accounting year your assets do not suddenly disappear.

  • Called up share capital is amounts owed for shares that are currently unpaid.

  • One paid they are Alloted, called up and fully paid.