Q: I am a director in a small limited company, and we have a number of employees who have use of company cars and others who receive various expense payments. We are currently completing our end of year forms P11d. Do you have any advice on the type of records we should keep, and what HM Revenue and Customs might target in an investigation?

A: A small company is now more likely than ever to be subject to a full review of their compliance systems and procedures by HM Revenue & Customs. In completing your end of year forms P11d and P11d(b) employers declaration, pay careful attention to anything incurred in the name of an individual director/employee, but paid or reimbursed by the business.

You must include all travel, subsistence, and entertaining expenses in the information you enter on annual forms P11D, even if it is incurred for business purposes (unless you have an official HM Revenue & Customs dispensation). Even if you are registered for VAT, your P11D records have to be VAT inclusive.

You should keep full mileage logs for every vehicle, whether owned privately or by the company as they are likely to challenge all doubtful claims on the business mileage limit. If you were to receive an inspection they would ask for evidence of business mileage. Also ensure you keep separate figures for each car where there is a change during the year, or where more than one vehicle is available to a director/employee. The fuel benefit is an 'all or nothing' benefit, so if the business pays for any private fuel and is not fully reimbursed by the director, the director must accept the corresponding fuel benefit.

We would suggest you retain all records and information relating to payroll benefits for six years, which is the period for which the HM Revenue & Customs has powers to investigate your business accounts.

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TaxAssist Accountants offer Limited Companies Tax Planning Advice.