Company directors and employees often receive non cash benefits as part of their job roles. If a company director or employee is receiving any benefit that has a monetary value then this is known as a benefit in kind and needs to be detailed on a P11D. As well as this companies will often reimburse employees for expenses they have paid out of their own pocket but occasionally the company can over pay the employee (a good example of this is mileage allowance) and in other instances the expenses being reimbursed just aren’t business expenses. In all of these situations HMRC want to be made aware.
As well as HMRC wanting to be in the know, there may well be a tax and national insurance liability to settle. In this article we will look at how to report expenses and benefits to HMRC using form P11D.
What Is A P11D Form
A P11D form is used by employers to report expenses and benefits it has provided to both directors and employees throughout a tax year. Any non salaried “perks” that have a monetary value may be considered benefits in kind and the P11D form is HMRC’s way of capturing the tax and national insurance due.
Completing this form is the responsibility of the employer and one form must be completed for each employee or director who has received expenses or benefits.
What Needs To Be Included On The P11D?
The official guidance from HMRC could be considered a little vague “you might need to report any expenses or benefits you provide to employees”. This vagueness is almost certainly deliberate as the list of potential benefits would be endless. However they do provide a pretty comprehensive list of examples on their website. The most common example we see in practice include:
Loans to Employees
Non Business Travel
Company Assets Used For Significant Personal Use
In examples where there is an easily determined value such as external gym memberships the payment amount can be used for completing the form. Where there is no easily determined amount such as use of the company car, employers should refer to HMRC guidance to help them calculate the benefit in kind value.
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The way exempt items are dealt with changed in April 2016. Previously employers would request a special dispensation which would allow them to leave certain employee expenses off of the P11D form. The new exemption system has simplified this somewhat meaning that many business expenses incurred personally by employees do not need to be reported at all. Some common examples of exempt expenses are:
Business Entertainment Expenses
Uniform & Tools For Work
This means that if an employee has received expenses throughout the tax year but they only relate to the repayment of exempt expenses then no P11D will be due for that employee.
Tax And National Insurance
Some expenses and benefits will attract tax and national insurance. The good news (for employees anyway) is that the Class 1A national insurance is paid by the employer at a rate of 13.8% for 2020-21 tax year. The only scenario where an employee would need to pay national insurance is where the employee receives cash from the employer to cover personal expenses as this would be considered earnings and not a benefit.
The employees will however need to pay income tax on any benefit in kind value that isn’t otherwise exempt. This is usually deducted when your employer processes the payroll. If you had multiple income sources and submit an annual self assessment return then you would need to declare the benefit in kind on the self assessment which could result in further taxation depending on income levels and sources.
When Is The Deadline?
The basis period is the same as a tax year and the deadline for submission is 6th July following the end of the tax year. So an employer must submit a form covering the period 6th April 2019 – 5th April 2020 by 6th July 2020.
If you miss the deadline then HMRC have the right to impose a £100 fine for each month or part month the P11D is overdue. This fine is per 50 employees so an employer with 250 employees who is 2 months late filing their form could be fined up to £1,000.
Overall HMRC tend to be slightly more lenient with P11D filings than with some other forms but as always they reserve the right to issue fines where they deem necessary.
P11D Filing Mistakes
If you notice any mistakes after you’ve submitted form P11D then you can correct them by submitting a new form which will override the old one. You will need to include details of all expenses and benefits on the corrected form and not just the ones you want to correct.
If your mistake results in you underpaying tax or national insurance then HMRC can issue you with a penalty but would only do so if they felt the mistake was careless or deliberate.
Employers will also need to submit form P11D(b) any time they submit a P11D. The P11D(b) is a summary of all employees and directors expenses and benefit amounts. So where an employer is submitting P11D’s for each of their 50 employees they would usually submit just 1 form P11D(b) to support and summarise the other forms being submitted. It also notifies HMRC of the company’s total Class 1A national insurance liability.
Employers need to keep accurate records of all expenses and benefits paid to directors and employees for at least 3 years from the end of the tax year they relate to. The records will need to support and corroborate information submitted on the P11D form.
The records can be in any form but should detail the date and details of any expenses provided to employees and directors, calculations for figures entered on the P11D form and details of any contributions made by the employee towards a particular benefit.
Failure to keep accurate accounting records can result in further fines from HMRC.