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HMRC internal manual

Tax Credits Manual

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HM Revenue & Customs
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Eligibility - income (employed and self-employed): Expenses and benefits in kind - previous year (Info)

For establishing the amount of taxable expenses and benefits in kind relevant for tax credits purposes for a previous year, forms P11D and P9D can be used.

Note: Form P9D only relates to tax year 2015 to 2016 and earlier. The form P9D and £8,500 earnings limit were abolished from 6 April 2016.

Note: Some employers include expenses and benefits on the employee’s P60. Where this happens customers should deduct the total value of the benefits from the P60 figure, leaving the earnings to be included at box 5.3. The customer will then need to calculate the amount of benefits to include at box 5.4.

Form P11D

Form P9D

Form P11D

This is issued where the employee is a director or earns £8,500 or more in the tax year. Not all sections of form P11D are relevant for tax credits purposes. The sections are lettered A to N.

 

Section Comments
   
A - Assets transferred (cars, property, goods or other assets) An amount shown in this section should be included as income for tax credits (box 5.4 on the claim form).
B - Payments made on behalf of employee An amount shown in the first box in this section should be included as income for tax credits (box 5.4 on the claim form).
An amount in the second box (headed ‘Tax on notional payments not borne by employee within 30 days of receipt of each notional payment’) should be ignored.    
  C - Vouchers or credit cards An amount shown in this section should be included as income for tax credits (box 5.4 on the claim form).
  D - Living accommodation Any amount in this section should be ignored.
  E - Mileage allowance and passenger payments An amount in this section should be included in full as income for tax credits (box 5.4 on the claim form).
  F - Cars and car fuel An amount in either of the boxes in this section should be included as income for tax credits (box 5.4 on the claim form).
  G - Vans and van fuel Any amount in this section should be ignored.
  H - Interest-free and low interest loans Any amount in this section should be ignored.
  I - Private medical treatment or insurance Any amount in this section should be ignored.
  J - Qualifying relocation expenses payments and benefits Any amount in this section should be included for tax credit purposes as the limited income tax exemption of £8,000 has already been taken into account by the employer and it is only the excess above that amount which is included on the P11D (use EIM03100).
  K - Services supplied Any amount in this section should be ignored.
  L - Assets placed at the employee’s disposal Any amount in this section should be ignored.
  M - Other items (including subscriptions and professional fees) Various items may be included here but not all are relevant
  • fees or subscriptions borne by the employer on the employee’s behalf where the arrangement is between the employee and the organisation.

These should be included as income unless the fees and subscriptions are to a professional body or learned society. Use the Employment Income Manual at EIM32890 and EIM32900.

  • educational assistance awarded to students by reason of their parent’s employment.

Ignored for tax credit purposes.

  • nursery places provided for the children of directors or employees.

Ignored for tax credit purposes.

  • Income Tax paid to the Collector of Taxes that wasn’t deducted from a director’s earnings through PAYE.
Ignored for tax credit purposes.    
  N - Expenses payments made to or on behalf of, the employee Various items may be included here but not all are relevant
  • travelling and subsistence payments.

Include as income (box 5.4) unless

  • wholly, exclusively and necessarily incurred in the performance of the duties of the customer’s employment
  • qualifying travelling expenses.

Note:Necessary expenses are those which each and every person doing the job would have to meet.

Note:The expenses have to be incurred in actually carrying out the duties of the job not those that put someone in a position to start a job.

  • Entertainment expenses, payments for use of home phone or other expenses.

Include as income (box 5.4) unless

  • wholly, exclusively and necessarily incurred in the performance of the duties of the customer’s employment.

Necessary expenses are those which each and every person doing the job would have to meet. The expenses have to be incurred in actually carrying out the duties of the job not those that put someone in a position to start a job.

  • general expenses allowance for business travel (that is, a ‘round sum’ or flat rate allowance), non-qualifying relocation expenses or personal incidental expenses.
Include as income (box 5.4).

 

Note: Expenses payments received by Ministers of Religion and Clergymen. Special expenses rules apply to these taxpayers for income tax purposes.

However, for the year 2001-2002 only not all of these have been applied to tax credits. Under income tax rules, Ministers and Clergymen are able to apply for a deduction for expenses incurred wholly, exclusively and necessarily in the performance of their duties. This is the same as with any other employee or office holder and the Schedule E (SE) Manual at SE60046 - 60048 gives examples of the sort of expenses that are considered ‘necessary’ for Ministers / Clergymen.

For tax credit purposes (for the year 2001-2002 only) deduction of these expenses is not allowed. However, where such expenses are paid or reimbursed to an employee, the amount of these expense payments is excluded from tax credit income (and thus achieves the same result).

For many Ministers of Religion, their place of work is their home. Therefore, where a room in the house is set aside exclusively for work use, rent or other related home expenses: gas, electricity, cleaning and Council Tax (use the Schedule E (SE) Manual at SE32815) paid or reimbursed to them can be reduced for tax credit purposes by a proportion of the costs of the room.

Income Tax law allows Ministers and Clergymen to also deduct

  • a proportion, not exceeding one quarter, of the rent paid for a dwelling house any part of which is used mainly and substantially (that is, not exclusively) for the purposes of the minister’s duties
  • one quarter of the expenditure on the maintenance, repair, insurance or management of any accommodation that is made available to the minister. Use the Schedule E (SE) Manual at SE60044. This doesn’t refer to property of the Minister or Clergyman but is a property provided for their use by a charity or church corporation.

Again, for tax credit purposes for the year 2001-2002 only, deduction of these types of expenses is not allowed. In addition though, if any of these expenses are paid or reimbursed to Ministers or Clergymen and shown on the P11D, then the amount of these payments is not excluded. They should be included as income (claim form box 5.4). Therefore, there is a different treatment.

It is unlikely that a Minister or Clergyman would be expected to pay for repair and maintenance of a property that is not their own. The second situation described above will therefore be rare.

For 2003-2004 onwards, the treatment of Ministers of Religion and Clergymen follows the income tax rules. For further guidance, use TCM0118240.

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Form P9D

This is issued where the employee is not a director and earns less than £8,500 in the tax year. Not all sections of form P9D are relevant for tax credit purposes. The sections are lettered A to C.

Note: Form P9D only relates to tax year 2015 to 2016 and earlier. The form P9D and £8,500 earnings limit were abolished from 6 April 2016.

Section Comments
   
A(1) - Expenses payments Any amounts shown in this section should be included as income (claim form box 5.4).
A(2) - Any other payments or benefits Any amounts shown in this section should be included as income (claim form box 5.4).
     
  B - Vouchers and credit cards Any amounts shown in this section should be included as income (claim form box 5.4).
  C - Accommodation Any amount in this section should be ignored.