This week’s blog, I’m looking at work-related benefits and the P11D form, what to include on the application, when you need to file it and what will happen if you don’t!
What is a P11D?
The P11D is a tax form filed by United Kingdom employers for each director and each employee and sent to the tax office with which their PAYE scheme is registered. P11Ds report benefits provided and expense payments made to employees by employers that are excluded from the payroll. The form is submitted annually and tells HMRC the value of these benefits, or to give them their full name ‘benefits in kind’.
Employees do not have to complete a PIID. Still, they must include the details on their annual Self-Assessment tax return, which has the knock-on effect of increasing their salary by the value of the benefit.
These benefits are items or services which you may receive from your company in addition to your salary. The most common items are fuel, company cars, private healthcare, and loans (interest-free or at a reduced rate) to pay for such things as buying a car or a train season ticket.
When should a P11D be filed?
Employers must submit a PIID end-of-year report to HMRC for each employee you have provided with expenses or benefits in the tax year ending 5th April. The employer and not the employee file them. However, for the many contractors and freelancers out there, they are effectively one and the same.
The form itself must be filed with HMRC no later than 6th July, so for the tax year ending on 5th April 2020 the filing date is 6th July 2020
What must you include on the P11D?
Include pretty much any items the company pays for which the employee benefits on the P11D form. The main expenses and benefits to report to HMRC are:
- Any transferred asset, i.e. a car, property or other goods. Most often transferred assets occur when an employee leaves a company after long service or on retirement.
- Payments made on behalf of the employee
- Vouchers and credit cards
- Living accommodation
- Mileage allowance payments above the standard rate of 45p per mile
- Cars and car fuel
- Vans and van fuel
- Interest-free and low-interest loans
- Private medical treatment or insurance
- Certain relocation expenses payments and benefits
- Services supplied
- Assets provided to an employee that have significant personal use
- Expenses payments made on behalf of the employee
- Non-business travel and entertainment expenses
Are there any exemptions?
There are a handful of P11D exemptions for certain business expenses, incurred by the employee and paid by the employer. Up to 5th April 2016, these expenses could be omitted from P11D forms by obtaining a special dispensation from HMRC. The omission system has now replaced exemption. The majority of business expenses incurred personally by company employees no longer need to be recorded on a P11D form. These include:
- Business Travel expenses
- Business-related entertainment expenses
- Credit cards used for business purposes
- Fees and subscriptions, such as annual fees for professional qualifications
- The cost of calls made by employees from their home telephone or personal mobile
What happens if I miss the 6th July deadline?
Unfortunately, as with most tax filings, HMRC is ready and waiting with the penalty hammer should you file late or negligently. However, if you miss the deadline of 6th July, you won’t incur penalties immediately, but this dispensation is only for two weeks.
After this short period of grace, your company will incur a penalty of £100 per month (or part month) per 50 employees. If your P11D is incorrect, you could also face fines. There is, however one ‘get out of jail’ card available if you’ve been fined, the penalties can be waived. Only if HMRC believes your mistake was genuine and that you took reasonable care before filing.
However, penalties of up to 100% of the tax owed can be applied if HMRC believes you acted carelessly, deliberately misled them or attempted to conceal your real liabilities.
P11D Who pays, and at what rate?
An employee is taxed at their marginal rate of Income Tax; this means you only pay the specified tax rate on that portion of salary. So whatever tax bracket your salary puts you in, then you only pay that tax rate, 20%, 40% or 45%, on the taxable value of the benefit received.
Also, as far as National Insurance contributions (NICs) are concerned, the good news is that employees do not pay any NICs on benefits in kind received. However, as I’ve indicated above, income tax is payable.
The bad news for employers is that Class 1 NICs are payable for the tax year in which the benefit is made available to the employee. For the tax year 2018 to 2019, the Class 1A rate payable is 13.8%.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.