If your employees receive benefits in kind and/or claim expenses, these may need to be reported to HMRC and tax and national insurance contribution may need to be made.
We’ve created this brief guide to help you understand your responsibilities and obligations about employee expenses and benefits.
What are taxable benefits and expense payments?
Employee expenses and benefits can include:
- Company car
- Childcare vouchers
- Gym memberships
- Health insurance
- Travel expenses
- Entertainment expenses
- Use of a company laptop or mobile phone
Who needs to complete the p11d expenses and benefits form?
For every employee receiving expenses and benefits, you will generally need to submit a P11D form to HMRC at the end of the tax year. A P11D form notifies HMRC of any expenses or benefits in kind that an employee must pay tax on.
Furthermore, you must provide a P11D(b) form if:
- You have submitted any P11D forms
- You have paid employees’ expenses or benefits through your payroll
- HMRC have asked you to - either by sending you a form or an email
The P11D(b) form lets HMRC know how much Class 1A National Insurance you need to pay on all the expenses and benefits your employees have received.
If HMRC has asked you to submit a P11D(b), you can tell them you do not owe Class 1A National Insurance by completing a declaration.
When paying tax on employee expenses and benefits, this can usually be done through the payroll you registered with HMRC before the start of the tax year (6th April).
A P11D form is not required if you pay employee benefits and expenses tax through your payroll. However, you must submit a P11D(b) for National Insurance (NI) payment purposes.
When do I need to file a P11D?
P11D filings must all be filed by the 6th of July following the tax year in question. If the form is not filed by 19th July, your company will sustain fines of £100 per month (or part month) per 50 employees.
HMRC will send you a reminder if they have yet to receive the form by November and notify you of any penalties incurred.
Which employee expenses and benefits are exempt from PAYE?
Certain routine expenses may be exempt from PAYE and therefore do not need to be reported on the P11D form. These were formally known as dispensations.
The main types of expenses which may be exempt from PAYE are:
- travel and subsistence expenses
- fees and subscriptions
- business entertainment expenses.
An exemption will not cover expenses or benefits provided under a salary sacrifice arrangement.
To qualify as an exemption, you must pay a flat rate to the employee. This can be either a benchmark rate or negotiated and approved by HMRC.
In the latter, you do not need to apply to HMRC for an exemption if you use a bespoke rate based on the employee’s actual expenses. As alternative, you need to be refunding the employee’s actual costs.
You must have a robust system in place to check expenses payments made to employees and make sure that another employee is in charge of checking that receipts and reasons given for expenses are genuine.
When did payrolling expenses and benefits become mandatory?
Payrolling of benefits in kind means reporting the value of a benefit in kind, such as a company car, through the payroll each pay period during the tax year as alternative to the post-year end on Form P11D.
This means that the employee pays the tax on the benefit in kind alongside the tax on their cash wages and so does not see any retrospective amendment to their tax code to pay the tax in a later tax year.
However, payrolling is still voluntary and the mandatory benefit in kind reporting mechanism is via Forms P11D.
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Failure to pay the correct tax and NI contributions on employee expenses and benefits can result in penalties.